The Standing Committee of the National Assembly has just issued Resolution 954/2020/UBTVQH14 on adjusting family circumstance deductions of personal income tax dated June 2, 2020, effective from July 1, 2020.
Article table of contents
Official reduction in personal income tax starting from the tax calculation period of 2020 - Illustrative Image
The family circumstance-based deduction for personal income tax applies from the tax calculation period of 2020 as follows:
- The deduction for taxpayers is 11 million VND/month (132 million VND/year) (According to the current regulation, it is 09 million VND/month, equivalent to 108 million VND/year);- The deduction for each dependent is 4.4 million VND/month (According to the current regulation, it is 3.6 million VND/month).
Additionally, the tax calculation method will still be applied in accordance with the Personal Income Tax Law 2007 (amended and supplemented in 2012, 2014, 2020) and related guiding documents. Although the personal income tax calculation method remains unchanged, with the higher deduction amounts, taxpayers will pay lower personal income tax compared to previous years, and many individuals may not have to pay personal income tax at all.
Example: Mr. A is a resident individual with an income from salary, wages of 17 million VND per month. Mr. A has to support 01 child under 18 years old. In the month, he has to pay compulsory insurance contributions: 8% social insurance, 1% unemployment insurance, and 1.5% health insurance on the salary; in the month, Mr. A does not contribute to charity, humanitarian, or educational promotion funds.
Case 1: According to the current regulation applying for tax calculation periods before 2020 and temporary payment before July 1, 2020
Mr. A's monthly temporary personal income tax is determined as follows:
- Mr. A is allowed to deduct from taxable income the following amounts:
+ For himself: 09 million VND;
+ For 01 dependent (1 child): 3.6 million VND;
+ Social insurance, unemployment insurance, health insurance: 17 million VND x 10.5% = 1.785 million VND
Total deductible amounts are: 9 million VND + 3.6 million VND + 1.785 million VND = 14.385 million VND.
- Taxable income applied to the partially progressive tax schedule to calculate the payable tax amount is: 17 million VND - 14.385 million VND = 2.615 million VND.
- Therefore, after deducting the amounts according to regulations, Mr. A's taxable income falls in bracket 1 of the partially progressive tax table, thus, the personal income tax Mr. A has to pay is: 2.615 million VND x 5% = 0.13075 million VND (i.e., 130,750 VND).
Case 2: According to the new regulation from July 1, 2020, applying for tax calculation periods starting from 2020
Mr. A's monthly temporary personal income tax is determined as follows:
- Mr. A is allowed to deduct from taxable income the following amounts:
+ For himself: 11 million VND;
+ For 01 dependent (1 child): 4.4 million VND;
+ Social insurance, unemployment insurance, health insurance: 17 million VND x 10.5% = 1.785 million VND
Total deductible amounts are: 11 million VND + 4.4 million VND + 1.785 million VND = 17.185 million VND
- Taxable income applied to the partially progressive tax schedule to calculate the payable tax amount is: 17 million VND - 17.185 million VND = - 0.815 million VND.
- Therefore, after deducting the amounts according to regulations, Mr. A's taxable income is less than 0, so Mr. A does not need to pay personal income tax.
As shown in the example, Mr. A earns 17 million VND per month. Before July 1, 2020, he was required to pay personal income tax, but from July 1, 2020, onward, Mr. A no longer needs to pay personal income tax.
Since the new family circumstance-based deduction is applied for the tax calculation period of 2020, any provisional personal income tax payments in 2020 will be refunded (either fully or partially) to the taxpayer.
Hai Thanh
