Many employees often ask, “What is personal deduction?” This policy directly affects the amount of personal income tax (PIT) they must pay each year. According to the Draft Law on Personal Income Tax (amended), expected to take effect in 2026, the deduction level will be significantly increased to match the new income and living cost standards. DNP Vietnam Law Firm explains the concept, legal basis, and the upcoming deduction levels below.
1. What is Personal Deduction?
1.1. Definition and Meaning
– Under Clause 1, Article 19 of the 2007 Law on Personal Income Tax (amended in 2012), personal deduction refers to the amount subtracted from taxable income before calculating PIT.
– The purpose is to ensure a minimum living standard for taxpayers and their dependents.
1.2. Eligible Subjects
According to Article 19 of the Law on Personal Income Tax, the following persons are eligible:
– Taxpayer: A resident individual earning income from salaries or wages.
– Dependents: Individuals whom the taxpayer is responsible for supporting, including:
- Children under 18 years old, or over 18 but incapable of working.
- Spouse without income or with income below the regulated level.
- Parents who are beyond working age or incapable of working.
2. Current Deduction Levels
According to Resolution No. 954/2020/UBTVQH14, the current personal deduction rates are:
– For the taxpayer: VND 11 million/month (equivalent to VND 132 million/year).
– For each dependent: VND 4.4 million/month.
This level was adjusted in July 2020 to reflect changes in prices and average income. However, after five years of application, many argue that it no longer reflects the actual living costs, especially in major cities.
3. New Deduction Levels under the Draft Law on Personal Income Tax 2026
3.1. Proposal from the Ministry of Finance
In the Draft Law on PIT (amended) submitted to the Government in July 2025, the Ministry of Finance proposed two adjustment options:
Option 1:
– Taxpayer: VND 13.3 million/month
– Dependent: VND 5.3 million/month
Option 2:
– Taxpayer: VND 15.5 million/month
– Dependent: VND 6.2 million/month
According to the latest update from the National Assembly Standing Committee (October 2025 session), Option 2 has been approved for adoption.
3.2. Effective Date
- The new levels are expected to apply from the 2026 tax period (declared in 2027).
- This adjustment will help about 1.2 million taxpayers either pay less or no PIT.
3.3. Significance of the Adjustment
- Reduces the tax burden on middle-income earners.
- Boosts domestic consumption, supporting economic growth.
- Ensures tax fairness, reflecting higher living costs compared to 2020.
The Ministry of Finance stated that the approximately 40% increase is reasonable, consistent with average inflation and the regional minimum wage growth over the past five years.
4. Notes When Applying Personal Deduction
– Register dependents on time:
- Taxpayers must register and submit documents to the tax authority, usually through their employer.
- Late registration means deductions are only counted from the registration month.
– Avoid duplicate dependents: A dependent can only be registered by one taxpayer.
– Annual deduction declaration:
- Any changes in dependents (addition or removal) must be declared.
- If the obligation to support ends (e.g., child reaches adulthood or parents have stable income), taxpayers must update the information to avoid incorrect declarations.
Adjusting the family circumstance deduction is a necessary step in the current period. The new policy ensures fairness and aligns with the present economic and social conditions. It helps employees reduce their tax burden and improve living stability, while also stimulating consumption and promoting sustainable economic growth. DNP Vietnam Law Firm will continue to update the latest regulations to support taxpayers in complying accurately and effectively.
DNP VIET NAM LAW FIRM
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