Understanding Non-Taxable Income (PTKP) in Indonesia and how it affects tax calculation

What is non-taxable income (PTKP)?

Non-Taxable Income (known as PTKP in Indonesia) is the part of an individual taxpayer's income (WP) that is exempt from tax. This exemption is crucial to ensure that people with low incomes are not excessively burdened by income tax. 

In Indonesia, PTKP is defined in Article 6 of the 2008 Income Tax Law as one of the factors used to reduce a person’s gross income when calculating income tax, or often referred to as PPh Article 21.

In addition, the PTKP also serves as a threshold to determine whether or not an individual is liable to pay income tax. Simply put, if your taxable income (PKP) is below the PTKP threshold, you do not have to pay income tax. However, if your PKP exceeds the PTKP threshold, you will be liable for income tax. This system is designed to provide financial relief for low earners.

However, not every individual taxpayer has the same amount of non-taxable income. Instead, each taxpayer's amount depends on their marital status and the number of dependants, collectively known as their PTKP status. The current PTKP rates are set out in the 2021 Law on Harmonization of Tax Rules(UU HPP).

The role of PTKP in the calculation of personal income tax

When calculating tax, PTKP is used to calculate how much taxable income (PKP) is subject to personal income tax. The formula is simple: just subtract the PTKP amount from your annual net income and the result of this calculation is your taxable income. Please note that when calculating tax, net income refers to the total amount of income that the taxpayer earns after deductions.

Once you figure out the amount of taxable income, you can easily determine how much income tax you owe. According to the UU HPP 2021, here are the income tax rates for individual taxpayers based on their taxable income:

• Taxable income up to Rp60,000,000: 5%
• Taxable income between Rp60,000,000 - Rp250,000,000: 15%
• Taxable income between Rp250,000,000 - Rp500,000,000: 25%
• Taxable income between Rp500,000,000 - Rp5,000,000,000: 30%
• Taxable income over Rp5,000,000,000: 35%

Current PTKP status and regulations

The amount of non-taxable income in Indonesia is also regulated under the 2021 UU HPP and is in accordance with the provisions outlined in the Regulation of the Minister of Finance (PMK) No. 101 of 2016 on the Adjustment of Non-Taxable Income Threshold. This regulation determines the PTKP amounts based on marital status and the number of dependents.

Here you can find the current PTKP breakdown for individual taxpayers:

• Rp54,000,000 for single taxpayers.
• Additional Rp4,500,000 for married taxpayers.
• Additional Rp54,000,000 for a wife whose income is combined with that of her husband.
• An additional Rp4,500,000 for each dependent family member (biological or in-law), up to a maximum of three dependents per family.

The maximum number of dependants is limited to three. So, for example, if a taxpayer has five dependants, he may add Rp13,500,000 (or 3 x Rp4,500,000) to his PTKP amount instead of Rp22,500,000 (or 5 x Rp4,500,000). Dependants in this case include parents, children, siblings, in-laws and adopted children.

How to determine non-taxable income (PTKP) status

Determining your PTKP status is easy if you know your marital status and the number of dependants you have. Using the PTKP categories from the 2016 PMK, you can understand your own PTKP status and amount based on these factors.

For more details, here is a basic PTKP table for individual taxpayers.

Example of the use of non-taxable income for the tax calculation

To understand the role of PTKP or non-taxable income in tax calculation, let’s take a look at the example below.

Anto is an employee who is married and has two children. He already knows that he earns Rp7,000,000 net per month (or Rp84,000,000 per year) but he wants to know how much income tax he has to pay based on his income and PTKP status.

To find this out, Anto needs to know his PTKP status. Since Anto does not combine his income with that of his wife and has two dependants, his PTKP status falls into the K/2 category with a value of Rp67,500,000. This means that Rp67,500,000 of his total annual income is exempt from tax.

But does this mean that Anto is eligible to pay income tax?

The answer depends on his total taxable income for the year. Anto’s annual income is Rp84,000,000, which exceeds his PTKP threshold of Rp67,500,000. Therefore, Anto is liable to pay income tax according to the Law.

With this information, Anto can now calculate his taxable income and income tax.

Anto's Taxable Income = Anto's net income - PTKP

Anto’s Taxable Income = Rp84,000,000 - Rp67,500,000

Anto's Taxable Income = Rp16,500,000

Since Anto’s taxable income is less than Rp60,000,000, he falls under the 5% income tax bracket. Therefore, the amount of income tax that Anto has to pay is:

Anto’s income tax = Taxable income x 5%

Anto’s income tax = Rp16,500,000 x 5

Anto's income tax = Rp825,000

Simplifying tax administration with Aspire!

Tax administration is not limited to individual taxpayers. Companies must also pay their employees' income tax and pay their own corporate income tax according to the applicable laws. To avoid complications or errors, efficient tax administration and reporting is crucial.

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