Why you should be paying your personal income tax via interest-free instalments

Inland Revenue Authority of Singapore (IRAS) offers taxpayers the option to pay off their personal income tax via GIRO to enjoy 12 months of interest-free instalments.

It just occurred to me that one should opt for this instead of paying off my tax bill in full. The cash liquidity on hand could be deployed into fixed deposits (FD), t-bills, or other low risk investments to earn returns throughout the year.

As an example, for a tax bill of $12000, instead of paying in full, a possible approach to deploy the cash could be:

• (Month 1-3): Keep $3000 to pay instalments for first three months. Place the remaining $9000 into a 3 month FD.
• (Month 4-6): Keep $3000 to pay instalments for next three months. Place the remaining $6000 into a 3 month FD.
• (Month 7-9): Keep $3000 to pay instalments for next three months. Place the remaining $3000 into a 3 month FD.
• (Month 10-12): Pay off the remaining three months of instalments with matured FD.

Assuming the FD rate remains at 3.35% (offered by ICBC Bank in March 2024) throughout, one stands to earn $151.98 ($75.99 + $50.66 + $25.33) in FD interest while also having some cash liquidity to cope with emergencies.

The simple example above is not the most optimal approach to deploy the cash liquidity, but I hopes it illustrates that one can easily generate monetary returns by opting for interest-free instalments.