Special individual income tax deductions

Updated: Jan 2, 2019 govt.chinadaily.com.cn Print
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The State Council, China's cabinet, announced special individual income tax deductions in order to lower the tax burden for those who have certain expenditures.

Those expenditures cover the six areas of children's education, continuing education, health treatment for serious diseases, housing loan interests, rent and elderly care.

The new temporary measures came into effect along with the amended personal individual income tax law on Jan 1, 2019. For children's education, an amount of 1,000 yuan ($145) will be deducted every month from the parents' taxable income for each child's education from preschool all the way to doctoral education, including technical education.

Taxpayers who are receiving continuing education can also deduct 400 yuan a month for up to 48 months for a degree or 3,600 yuan in total for professional qualifications education.

Taxpayers with serious diseases will have the amount of their out-of-pocket medical costs (between 15,000 yuan and 80,000 yuan) deducted from their taxable income each year.

Taxpayers or their spouses who have mortgage loans for a first home may deduct 1,000 yuan per month from taxable income.

A housing rent deduction of up to 18,000 yuan each year will be granted to taxpayers who own no housing in the city where they work.

An amount of up to 2,000 yuan every month will be deducted from the taxable income of any taxpayer who is an only child and has a parent who is over 60. Sibling taxpayers must share the 2,000-yuan deduction.

China started implementing a new standard for individual income tax from October, 2018. The threshold for personal income tax exemptions was raised from 3,500 yuan to 5,000 yuan per month or 60,000 yuan per year.

An ordinary Beijing taxpayer with a pre-tax income of 20,000 yuan, who is an only child, has one child who goes to school and parents who are above 60, and who rents a home and studies for a master's degree on the job, can enjoy four special deductions. The income tax is about 800 yuan, nearly 75 percent lower than the amount of over 3,100 yuan before October, 2017.

From 2019 to 2021, foreign residents in China can choose to enjoy either the newly introduced special tax deductions, or the tax exemption from housing allowance, language training fee, and children's education allowance. But from 2022, foreign residents will only be allowed to enjoy the same special tax deductions as domestic residents.

The cancellation of foreigner-only tax benefits conforms to international conventions and the fundamental principle of an open market economy to ensure equal treatment for domestic and foreign market participants.

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