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Guide to Tax Deductions

Guide to Tax Deductions

PUBLICATIONS \ 21.02.2020

In Russia, tax deductions can be received by tax residents, i.e. persons who remain in the territory of the country for at least 183 calendar days over a period of 12 consecutive months, as well as people who have received income (except for dividends) that is subject to income tax at the rate of 13%. Diana Goreva, Acsour’s Accountant, told in an article for “Raschet” magazine how to issue a refund to individuals.

STANDARD DEDUCTIONS

An individual who falls into one of three groups is entitled to a standard deduction.

1st category: people who have received or have had radiation sickness as a result of the elimination of the Chernobyl accident or the elimination of the accident at the “Mayak” station and discharges of radioactive waste into the Techa river, or when nuclear weapons were tested before January 31, 1963; and disabled persons from the Great Patriotic War (i.e. the Second World War) and military men who became disabled persons of groups I, II and III. These people can obtain a deduction in the amount of 3,000 rubles.

2nd category: the standard deduction can be claimed by Heroes of the Soviet Union and Heroes of the Russian Federation, as well as people awarded three classes of the Order of Glory; disabled persons of groups I and IIl; former survivors of the Siege of Leningrad; and persons disabled from childhood. This standard deduction assumes a refund of 500 rubles.

And finally, the 3rd category of people: a parent, or a spouse of a parent or adoptive parent, in whose care a child is. The state will return between 14,000 and 6,000 rubles for this category of deductions. For simplicity, we have listed all the amounts in the table 1.

Condition Parents, adoptive parents, and their spouses Carers, guardians, and their spouses
First and second child 1,400 rubles 1,400 rubles
Third and subsequent child 3,000 rubles 3,000 rubles
Disabled child 12,000 rubles 6,000 rubles

Please note that there are additional conditions for receiving a deduction under the 3rd category: thus, a tax deduction is made for a child under 18 years of age, or under 24 years of age if he or she is studying on an intramural basis. The legislation stipulates the possibility of receiving a deduction for a child in double the amount to a single parent or upon receipt of a written refusal from the second parent to receive a deduction.

It is important to remember that the standard deduction is applied monthly and is terminated when the taxpayer’s income reaches 350,000 rubles from the beginning of the calendar year on an accrual basis. To receive a deduction at work, an employee must make a personal application supported by a copy of the document confirming the right to receive the deduction (for example, a birth certificate or a certificate of disability).

If an employee would like to obtain a deduction on his or her own, he or she has to file a tax return on the form 3-NDFL at the end of the tax period within the next three years. An employee can receive a standard deduction for only one of the listed categories. If for any reason during the tax period he or she did not receive a deduction or received it in a smaller amount, then an adjusted calculation can be made based on the 3-NDFL tax return provided to the inspectorate.

In recent months, the media has been actively discussing a new administration bill in the State Duma, Russia’s Parliament to increase the amount of standard deductions and increase the marginal income, as well as increasing the amount of social deductions for children’s education. A considerable number of instructions were written taking into account the new changes, but, unfortunately, the administration bill did not reach the first reading. Therefore, you should only count on the current regulations and not use the regulatory regime that has not gone through all the necessary authorities and has not entered into force.

SOCIAL TAX DEDUCTIONS

The following persons can claim for social tax deductions:

  • those who made a donation to a charitable institution;
  • those who have paid for their own education on an intramural and extramural basis or for a relative’s education on an intramural basis;
  • for those who have paid for medical treatment;
  • those who have made contributions to the funded part of pension insurance;
  • those who have made contributions under non-state pension scheme contracts for themselves or in favour of family members.

Table 2 shows the amounts and conditions for receiving deductions.

Who has the right to receive deductions? The maximum amount of expense to which the deduction is applied Conditions for obtaining a deduction Documents required to obtain the deduction
Persons who have made donations The donation amount, but not more than 25% of income The charitable fund should be a non-profit organization and have a license Document confirming the taxpayer’s expenses
Persons who have paid for their education Not more than 120,000 rubles The educational institution should have a license Apprenticeship contract, documents confirming payment
Persons who paid for the education of a brother or sister, child or a person under wardship Not more than 50,000 rubles The educational institution has a license, intramural form of study, the children are their own and under 24 years of age; persons under wardship should be under 18 years of age Apprenticeship contract, documents confirming payment, documents confirming the family relationship.
Persons who have paid for medical services for themselves Up to 120,000 rubles The medical organization should have a license and the treatment should have been prescribed by a physician Contract with a medical organization, documents confirming payment, Certificate of payment for services for submission to the tax authorities
Persons who have paid for medical services for a brother (sister), spouse, or children (including adopted children) under 18 years of age Up to 120,000 rubles The medical organization should have a license and the treatment should have been prescribed by a physician Contract with a medical organization, documents confirming payment, Certificate of payment for services for submission to the tax authorities, documents confirming the family relationship.
Persons who have paid pension contributions Up to 120,000 rubles The contribution should be for themselves or an immediate relative Contract with the non-state pension fund, documents confirming payment.

It should be noted that the taxpayer has the right to receive a social tax deduction for several categories, for example, to pay for their education at a University and treatment in a medical organization, but the amount of the maximum expense on which a deduction will be received is 120,000 rubles. The social tax deduction can be obtained both through the employer and the local tax office. To obtain a deduction at work, an employee needs to: write an application to the inspectorate and submit supporting documents; after 30 days, receive a notification of the right to a social deduction; submit the notification from the inspectorate to the employer; and write an application for a social deduction. To obtain a deduction through the inspectorate, you have to submit a declaration on the form 3-NDFL to the inspectors.

PROPERTY DEDUCTION

The right to a property deduction is granted to taxpayers who: have sold property or a share in it, or a share in the issued capital of a company, resigned from membership of a company, have received monetary funds or other property (property rights) as a shareholder of the organization in the event of its liquidation, and also when the nominal value of a share in the issued capital of the company is reduced, when rights of claimed under a contract of participation in shared construction are assigned; have bought an apartment, a residential house, a land plot for individual housing construction or land plot under an acquired residential house; or have paid off the interest on the purchase of the above mentioned real estate on credit. Further, the amount of the deduction may include the cost of finishing works, purchase of materials, the drawing up of design and estimate documentation for a new construction or the acquisition of a residential house or shares in it, an apartment, a room or a share in them within Russia. A property tax deduction is granted in the amount of the actual expenses incurred for a new construction or acquisition of one or more pieces of property that do not exceed 2,000,000 rubles. Therefore, the deduction can be applied when buying two or more real estate items, while the amount of all expenditure on such real estate is recognized only within 2,000,000 rubles. If the property deduction is granted in the amount of the expenses actually incurred by the taxpayer to pay interest in accordance with a loan agreement, then it should be not more than 3,000,000 rubles. To receive this deduction, you need to prepare and submit the documents required to receive the deduction: the contract for the purchase of real estate; papers confirming ownership title to the purchased real estate item; a child’s birth certificate when parents purchase real estate in the ownership of their children under 18 years of age; documents confirming the taxpayer’s expenses; documents confirming the fact of payment of funds to pay off interest, if the real estate was purchased on credit. A property tax deduction, as well as a social deduction, can be obtained after the end of the tax period through the inspectorate or before the end of the tax period through the employer. Please note that this deduction can only be granted for one real estate item in a single tax period.

INVESTMENT TAX DEDUCTION

This deduction is granted when income is received from transactions in securities, or from income and transactions on an individual investment account. The deduction for the sale of securities is applied upon their sale, if the documents have been owned for at least three years, in an amount of not more than 3,000,000 rubles multiplied by the number of years of ownership, provided that the securities have not been placed on an individual investment account. A deduction for depositing monetary funds on an individual investment account is granted from the date when such account is opened. The deduction is in the amount of monetary funds deposited, subject to a maximum of 400,000 rubles per year for a single individual investment account. If the account is closed or repaid earlier than three years from the date of opening, the deduction will be canceled, and the amount of tax that was not paid to the budget in connection with the receipt of the deduction will be restored and paid to the budget, with penalties also being recovered. The deduction can be used when submitting a declaration for 2015 and later periods. Investment deductions are granted only after the end of the tax period when a tax return is filed using the 3-NDFL form.

PROFESSIONAL TAX DEDUCTION

Individuals, as well as individual entrepreneurs, are entitled to this deduction if they have incurred documented expenses to generate income. If the entrepreneur cannot document his or her expenses, the deduction is provided in the amount of 20% of the total amount of income received by the individual entrepreneur from his or her activities. Please note that the professional deduction can be received by individuals who perform works and services under civil law contracts, as well as by those who receive royalty fees. A professional deduction can be obtained by filing a declaration on the 3-NDFL form for the year or through a tax agent.

PROCEDURE FOR RECEIPT

As you can see, the universally applicable approach to receive all tax deductions is to file a tax return on the form 3-NDFL. To prepare such a document, you need the following papers:

  • a 2-NDFL certificate from the employer for the period for which the declaration is filed;
  • documents confirming the right to the deduction;
  • the taxpayer’s banking details.

The period for a desk audit is up to three months from the date when the declaration is filed. A refund of the amount of overpaid income tax is made based on the taxpayer’s application. If the inspectorate makes a positive decision, the period for returning such personal income tax is 10 days.

Diana Goreva

Accountant