Interim Measures for Additional Special Individual Income Tax Deductions (Mainland China)

Karl Zhang

Recently, the State Council promulgated the Interim Measures for Additional Special Individual Income Tax Deductions (the “Interim Measures”), which contain specific implementation measures for issues arising from special deductions under the newly promulgated Individual Income Tax Law. Under the Interim Measures, special deductions cover among others children’s education, continuing education, healthcare for major illnesses, mortgage interest, housing rent, and support of the elderly.  The specifics are discussed as follows:

1. Child education

Under the Interim Measures, the standard deduction for children’s education is fixed at RMB 1,000 for each child each month. Educational expenses for children above the age of three, from preschool education to doctoral studies and regardless of whether they are located inside or outside of China, may be deducted 100% by one of the parents or 50% by each parent.

2. Continuing education

Under the Interim Measures, continuing education deductions include two categories of expenditure: expenditures for continuing education for academic qualifications (degrees) and continuing education for vocational qualifications. For academic (degree) education, a fixed amount of RMB 400 may be deducted each month during the period of education, but deductions for the same degree shall not exceed 48 months.  For vocational qualifications, a fixed amount of RMB 3,600 may be deducted for the year the relevant certificate is received.

As for continuing education for undergraduate qualifications or lower level education, if the deduction conditions under the Interim Measures are met, the deductions may be made by the parents or by the individuals receiving the education.

3. Healthcare for major illnesses

Under the Interim Measures, a taxpayer settling and paying medical expenses in relation to basic healthcare may deduct the actual cumulative amount personally paid by the taxpayer in excess of RMB 15,000 (after excluding reimbursement from medical insurance) up to a maximum deduction of RMB 80,000.

Such deduction may be optionally made by the taxpayer incurring the expenditures or by their spouse. In case of expenses incurred by underage children, the deduction may be made by one of the parents.  The deductions available to taxpayer, his/her spouse and underage children are assessed separately.

4. Mortgage interest

Under the Interim Measures, a fixed amount of RMB 1,000 per month may be deducted from the interest expenses for the first housing loan from the year the interest is incurred for up to 240 months. Taxpayers can only enjoy an interest deduction for the first housing loan once.  A couple may choose to make the deduction by one spouse.  If the husband and wife have each separately purchased a housing unit before marriage, one of the housing units may be selected after the marriage for 100% deduction by the buyer of that unit according to the deduction standard, or the deduction may be made by the husband and wife separately for their respective housing units at 50% of the deduction standard.  Once selected, the deduction method shall not be changed in the same tax year.

5. Housing rent

Under the Interim Measures, taxpayers who rent instead of own housing units in the city where they primarily work at may make a deduction by of RMB 1,500, RMB 1,100 or RMB 800 depending on the level of the city they are in. If a couple’s primary work locations are in the same city, only one of the couple may deduct the rent expenses.

6. Support for the elderly

Under the Interim Measures, the monthly deduction amount for supporting at least one dependent is RMB 2,000. If the taxpayer is not the only child, the RMB 2,000 deduction may be shared among siblings.  Dependents refer to parents at least 60 years of age and to grandparents or great grandparents at least 60 years of age whose children have deceased.

The Interim Measures also propose safeguard measures to ensure truthful and accurate deductions and require all departments to assist in the verification of information. In addition, taxpayers are also required to keep corresponding receipts for future reference, and any special additional deductions that are not fully utilized in one tax year cannot be carried forward to subsequent years. As for the specifics on how such deductions are carried out, the tax authority under the State Council will separately prescribe the methods and provide a dedicated mobile app for such use.