Regulation Update
Scholarships Can Be a Tax Reduction

Tuesday, 30 June 2020

Scholarships Can Be a Tax Reduction

The government provides tax incentive to companies and individuals who provide educational scholarships both formal and non-formal, by issuing Regulation of the Minister of Finance (PMK) number 68 / PMK.03 / 2020.

This rule states, the costs incurred related to awarding scholarships are a component of gross income reduction, in calculating taxable income (PKP).

The following costs may be deducted from gross income:

  1. Tuition fees paid to schools, educational institutions or training
  2. Examination fee
  3. Research cost related to the field of study
  4. Book costs
  5. Transportation costs
  6. Living expenses

Not an Income Tax Object

The fees paid to schools, educational institutions or training, in addition to being a deduction for gross income, are also not an Income Tax object for recipients. Likewise, if there is more balance between the scholarship funds received with the cost incurrd by the educational institution, the excess is not the object of Income Tax. 

Read: The Rules for Making Tax Withholding Slip of ITA 23 or 26 are Expanded

The referred fees are costs incurred by educational institutions or agency to obtain, collect and maintain scholarship funds. the examples are assistance, donations or grant, operational costs of educational activities, the cost of procurement of goods to support operational activities and costs to improve the quality and education services.

However, there are some conditions that must be met so that the remaining funds can be categorized as non-tax object. These requirements include, first, being used for certain things such as the construction or procurement of facilities to support educational activities, as well as research and development activities.

Secondly, it is allocated in the form of an endowment fund with the record that the recipient agency or institution has received accreditation from an authorized institution and is approved by the university leaders, both public and private, the board of trustees and officials of the relevant government agencies. 

The remaining funds must be realized within a maximum of four years after the excess is received and must be reported to the Directorate General of Taxes (DGT) every tax year. If, after this period the fund is not used as it should, it must be recognized as additional income that is subject to income tax and reported in the Annual Income Tax Return (SPT) as a fiscal correction.



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