Double deduction for scholarships provided by companies

Double deduction for scholarships provided by companies

In Budget 2022 (see Take 5: Malaysia Budget 2022), it was proposed that the scope of double deductions for companies sponsoring scholarships for Malaysian students be extended to the year of assessment (YA) 2025, and expanded to all fields of study at the following levels:

• Technical and vocational
• Diploma, bachelor’s degree, master’s degree or Doctor of Philosophy 

To legislate the above proposals, the Income Tax (Deduction for the Sponsorship of Scholarship to Malaysian Student Pursuing Studies at Technical and Vocational Certificate, Diploma, Bachelor’s Degree, Master’s Degree or Doctor of Philosophy Levels) Rules 2022 [P.U.(A) 49] were gazetted on 7 March 2022. The Rules provide that in ascertaining a company’s adjusted income from its business for a YA, a double deduction shall be allowed for the expenses incurred and paid by the company in that basis period, for sponsoring a scholarship for a student according to the period of the relevant sponsorship agreement.

The double deduction is given for the following expenses incurred for sponsoring the scholarship:

(a)   Payment required by the relevant institution or higher educational institution in relation to the course of study, and

(b)  Educational aid and reasonable cost of living expenses throughout the student’s period of study at the relevant institution or higher educational institution

Any amount refunded by the student to the company shall, when received, be treated as gross business income of the company derived from Malaysia in the basis period for that YA.

The Rules shall apply to a company which:

(a)  Is a Malaysian resident company incorporated under the Companies Act 2016

(b)  Sponsors a scholarship for a student pursuing a full-time course of study at a: 

(i)       Technical and vocational certificate level in an institution, or

(ii)       Diploma, bachelor’s degree, master’s degree or Doctor of Philosophy level in a higher educational institution, and

(c)  Executes a scholarship agreement with a student between 1 January 2022 and 31 December 2025.

The following terms have been defined in the Rules:

(a)    Institution

         Any institution recognized by the Malaysian Qualifications Agency or the Skills Development  Department

(b)   Higher educational institution

         Any institution established under the Universities and University Colleges Act 1971, Universiti Technologi MARA Act 1976 or the Private Higher Educational Institutions Act 1996

(c)    Student

         Means an individual:

          (i)    Who is a Malaysian citizen and a Malaysian resident,

          (ii)   Who is pursuing a full-time course of study at a:

     -     Technical and vocational certificate level in an institution, or

     -     Diploma, bachelor’s degree, master’s degree or Doctor of Philosophy level in a higher educational institution,

           (iii) Who has no means of his own, and

           (iv) Whose parents’ or guardians’ total monthly income do not exceed RM10,000

The Rules are effective from YA 2022.