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Questions and Answers
What tax exemption is granted to annuitants in Malaysia for annuities purchased from life insurance and takaful companies?
What tax exemption is granted to annuitants in Malaysia for annuities purchased from life insurance and takaful companies?
- RM500
- RM2,000
- RM1,000 (correct)
- RM1,500
What is one of the primary advantages of purchasing an annuity?
What is one of the primary advantages of purchasing an annuity?
- It automatically matches inflation rates.
- It provides a constant income stream for retirement. (correct)
- It guarantees high capital gains.
- It allows complete control over investment decisions.
Which of the following limitations is associated with annuities?
Which of the following limitations is associated with annuities?
- All annuities come with no risk to capital.
- Annuities provide complicated tax benefits.
- Annuities can reduce purchasing power if payments do not match inflation. (correct)
- Annuities always guarantee high returns.
How can annuities be beneficial for individuals who struggle with money management?
How can annuities be beneficial for individuals who struggle with money management?
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What is the significance of the tax exemption for annuities to individual clients?
What is the significance of the tax exemption for annuities to individual clients?
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Study Notes
Tax Treatment of Annuity in Malaysia
- Annuitants are granted an income tax exemption of RM1,000 for annuities purchased from life insurance and takaful companies.
- This exemption has been effective since the Year of Assessment 1995.
- The tax exemption results in a higher yield for clients compared to other investments that are not tax-exempt.
Advantages of Annuities
- Annuities offer a consistent income stream, assisting individuals in planning for a stress-free retirement.
- They can provide protection against inflation if the returns exceed the inflation rate.
- Suitable for individuals lacking in financial management skills, allowing for easier retirement planning.
- Annuities serve as a supplementary source of income in addition to the Employees Provident Fund (EPF) during retirement.
- Life insurers and takaful products present tax benefits to clients enrolling in annuity programs.
Limitations of Annuities
- Payments from annuities may fall short of matching the inflation rate, potentially reducing purchasing power in retirement.
- Variable annuities carry a risk of capital loss, exposing investors to market fluctuations.
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