Explanation of The Use of Donation Receipts

General Explanation Of The Use Of Donation Receipts For Institutions/Organizations/Funds Approved By The Director Of Inland Revenue (KPHDN) Under Subsection 44(6) Of The Income Tax Act 1967 (ACP 1967)

  1. This note aims to provide an explanation regarding the procedure for issuing donation/contribution receipts by institutions/organizations/funds approved by KPHDN under subsection 44(6) of the Income Tax Act 1967. Hopefully this note can help provide understanding and explanation to taxpayers, agents tax, IRBM officials and the public related to the procedure for issuing donation/contribution receipts by institutions/organizations/funds to donors/contributors as well as the responsibilities of donors/contributors.

  2. Taxpayers who make contributions and donations to the government, state government or a local authority , or to an institution or organization that has been approved under subsection 44(6) of the ITA are eligible to get a deduction for their contributions and donations in the calculation of aggregate income.

  3. Types of tax relief:-
    1. Donations or contributions to the Federal Government, State Governments and Local Governments are equal to the amount of donations and contributions and must be proven with a Kew-38 Receipt.
    2. Donations or contributions under the approval of the Director General, the amount is limited to 10% of aggregate income to individuals and companies.

  4. IRBM recognizes 2 types of receipts for tax deductions under the provisions of subsection 44(6) of the ITA, namely Financial Receipt 38 (Kew-38) and KPHDN approval receipt. Kew-38 receipts are donations to government / state governments, local governments while KPHDN approval receipts are receipts from institutions / organizations / funds that have granted KPHDN approval under subsection 44(6) of the ITA.

  5. Only cash donations supported by official receipts are eligible for deduction. In kind donations such as food, clothes, computers and so on are not eligible for tax deduction and tax deduction receipt cannot be issued.
    • 5.1 Example 1
      • Mrs. Alia’s aggregate income for the year of assessment 2022 amounts to RM350,000. The donations contributed by her are as follows:
        • Cash donation amounting to RM40,000 to the Selangor State Government
        • Cash donation amounting to RM2,000 to University of Melbourne Alumni
        • Food donation amounting to RM100 to the homeless
        • Donation of furniture amounting to RM500 to the Welfare Club in his office
        Answer:
        Aggregate Income Amount RM350,000
        • Donations that are allowed to be deducted are cash donations amounting to RM40,000 to the Selangor State Government

    • 5.2 Example 2
      • Mr. Raymond’s aggregate income for the year of assessment 2022 amounts to RM150,000. The donations contributed by him are as follows:
        • Cash donation of RM16,000 to Astro Kasih Foundation
        • A cash donation of RM1,500 to the Gurdwara Sahib Sikh Temple Sentul Construction Fund
        • Clothing donation amounting to RM800 to Sri Andalas Orphanage
        Answer:
        Aggregate Income Amount RM150,000
        • Allowed donations are a cash donation of RM16,000 to the Astro Kasih Foundation and a cash donation of RM1,500 to the Gurdwara Sahib Sikh Temple Sentul Construction Fund but limited to 10% of the aggregate income. Therefore, the amount of donations allowed to be deducted is limited to RM15,000 only.

  6. Taxpayers need to keep the receipts as evidence for LHDNM review if needed.