Income tax in Singapore can reach up to 22% on highest income bracket. To reduce income tax, Singapore government offers possibility to deduct retirement savings from chargeable income through the Supplementary retirement scheme (SRS). Read this article to understand how it works.
What is the Supplementary Retirement Scheme (SRS)?
The Supplementary Retirement Scheme (SRS) is a scheme started by the Singapore government that prepares you for retirement. Participation in SRS is voluntary, unlike the CPF scheme. Using the right way, SRS can be an effective tax relief tool while saving up for your retirement.
So how does SRS differ from CPF? Well, CPF only provides you a very basic retirement income, which might not be enough to sustain the lifestyle that you want and make the most of your golden years. Furthermore, many are using their CPF to buy homes, which will decrease your CPF payout during retirement.
How much can you save on tax reliefs?
One of the most notable benefits of having an SRS account is tax reliefs. You can make an SRS contribution to top up your SRS account as many times a year as you like, up to a maximum of S$15,300 for Singaporean citizens/PRs, and S$35,700 for foreigners. Here’s a simplified example of how SRS can help you achieve substantial tax savings:
|Less Personal Reliefs||$31,500|
|Without SRS||With SRS|
|Potential Tax Savings||$1,071 (40%)|
Don’t stop at just opening an SRS account
Money in your SRS account earns a mere 0.05% interest per annum. With an inflation rate of approximately 2%, idle money in your SRS account will erode over time. Make your SRS contributions work harder by investing it in instruments such as life insurance. Life insurance products are available through your bank but better go through independent financial advisors to have accessed to more options.
What’s more, your investment returns are credited directly to your SRS account where it can grow steadily and will be exempted from any income tax.
So what’s the catch?
The biggest cons of SRS account is that if you make any withdrawals before the statutory retirement age (currently age 62), it will be subjected to a 5% penalty, plus 100% of the amount withdrawn will be taxable.
However, after you reach the statutory retirement age, you can choose to withdraw the monies either everything at one go or spread your withdrawals over 10 years. During this period, any amount withdrawn from your SRS account will enjoy a 50% tax concession.
Finally, there is a personal income tax relief cap of $80,000 for each Year of Assesssment (including relief on SRS contributions).Therefore, do make an informed decision on the benefit of SRS contribution.
To take advantage of SRS tax relief for the coming year, you need to transfer the money before December 31st, so take note and reduce your income tax. If you want to know more about SRS accounts and how to optimise your savings, please contact us.