Income Tax in Malaysia

You know it’s tax season when the most of us start scrambling to file our taxes. It can get stressful if you’re unclear about certain aspects of filing your income tax returns or miss out on important exemptions. Finding out you owe more than you expected to the Inland Revenue Board of Malaysia (LHDN) can also be an unpleasant surprise.

However, it’s not that difficult to grasp the process of tax filing on your own. Once you’ve figured out the nitty gritty, this dreary task can be quite a breeze.

Types of Income That are Taxable

You have to be in one of the following income brackets to be taxed:

  • Business or profession
  • Employment
  • Dividends
  • Interests (except bank deposit interests)
  • Discounts
  • Rent collected
  • Royalties
  • Premiums
  • Pensions
  • Annuities
  • Perquisites, which include bill claims, company credit cards, loans from company, sponsored club memberships, sponsored child tuition fee, personal driver, and any benefits offered by your employer that could be converted into cash.

Income Tax Rate Malaysia

The tax rate starts at 0% and graduates to 28% on chargeable/taxable income that exceeds RM1 million each year. This is applicable only for residents of Malaysia.

If you’re a non-resident, you’ll be charged a flat rate of 28% on your chargeable income. Below are the tax rates for residents of Malaysia.

Chargeable Income Income Tax Rate (%) Gross Tax Payable (RM)
On RM5,000  Next RM5,000 0  1 0  50
On RM10,000  Next RM10,000 –  1 50  100
On RM20,000  Next RM15,000 –  3 150  450
On RM35,000  Next RM15,000 –  8 600  1,200
On RM50,000  Next RM20,000 –  14 1,800  2,800
On RM70,000  Next RM30,000 –  21 4,600  6,300
On RM100,000  Next RM50,000 –  24 10,900  12,000
On RM150,000  Next RM100,000 –  24 22,900  24,000
On RM250,000  Next RM150,000 –  24.5 46,900  36,750
On RM400,000  Next RM200,000 –  25 83,650  50,000
On RM600,000  Next RM400,000 –  26 133,650  104,000
On RM1,000,000  Exceeding RM1,000,000 –  28 237,650 

Now that you know what income bracket is applicable for income tax, let’s break it down even further.

Let’s assume you’re a full-time employee, drawing RM60,000 from your job. You also have several investments. Your fixed deposit earns you RM1,000 and you earn RM10,000 from rent. This totals up your annual income to RM71,500.

How to Calculate Taxable Income?

Total Annual Income RM71,000
Exemption: Interest earned from Fixed Deposit RM1,000
Relief: Self and dependent RM9,000
Relief: EPF and life insurance (up to 6,000) RM6,000
Relief: Medical insurance RM750
 
Total chargeable income Total annual income – tax exemptions – tax reliefs (71,000 – (RM1,000) – (RM9,000 + RM6,000 + RM750) = RM54,250

Your total taxable income will be RM54,250 each year.

Tax Reliefs in Malaysia

With tax relief, the amount you owe on taxes is significantly reduced. Below are the tax reliefs in Malaysia,

S.No Individual Relief Types Amount (RM)
1 Self and dependent 9,000
2 Medical expenses for parents or, Parent Limited 1,500 for only one mother Limited 1,500 for only one father 5,000 (Limited) OR 3000 (Limited)
3 Basic supporting equipment for disabled self, spouse, child, or parent 6,000 (Limited)
4 Disabled Individual 6,000
5 Education Fees (Self)
  • Other than a degree at Masters or Doctorate level-for acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications;
  • Degree at Masters or Doctorate level-for acquiring any skills or qualification
7,000 (Limited)
6 Medical expenses for serious diseases for self, spouse or child 6,000 (Limited)
7 Complete medical examination for self, spouse, child 500 (Limited)
8 Lifestyle:
  • Purchase of books journals, magazines, printed newspaper and other similar publications (except banned reading materials) for self, spouse or child;
  • Purchase of a personal computer, smartphone or tablet for self, spouse or child;
  • Purchase of sports equipment for any sports activity as defined under the Sports Development Act 1997 (excluding motorized two-wheel bicycles) and gym memberships for self, spouse or child; and
  • Payment of monthly bill for internet subscription
2,500 (Limited)
9 Purchase of breastfeeding equipment 1,000 (Limited)
10 Net saving in SSPN's scheme (total deposit in year 2017 MINUS total withdrawal in year 2017) 6,000 (Limited)
11 Child care fees to a Child Care Centre or a Kindergarten 1,000 (Limited)
12 Husband/Wife/Alimony Payments 4,000 (Limited)
13 Disabled Wife/Husband 3,500
14 Ordinary Child relief 2,000
15 Each unmarried child of 18 years and above who is receiving full-time education ("A-Level", certificate, matriculation or preparatory courses) 2,000
16 Each unmarried child of 18 years and above that:
  • Receiving further education in Malaysia in respect of an award of diploma or higher (excluding matriculation/preparatory courses)
  • Receiving further education outside Malaysia in respect of an award of degree or its equivalent (including Master or Doctorate)
  • The instruction and educational establishment shall be approved by the relevant government authority
8,000
17 Disabled child (Additional exemption of RM8,000 disabled child age 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia @ bachelor degree or above outside Malaysia in program and in Higher Education Institute that is accredited by related Government authorities) 6,000
18 Life insurance and EPF INCLUDING not through salary deduction 6,000 (Limited)
19 Deferred Annuity and Private Retirement Scheme (PRS) - with effect from year assessment 2012 until year assessment 2021 3,000 (Limited)
20 Insurance premium for education or medical benefit INCLUDING not through salary deduction 3,000 (Limited)
21 Contribution to the Social Security Organization (SOCSO) 250 (Limited)

Budget 2019, which was released in November 2018, included new changes to tax reliefs:

  • To encourage taxpayers to voluntarily declare any reported income, the Government will offer a Special Voluntary Disclosure Program.
  • The tax relief for your Takaful premium or life insurance and EPF contribution will be separated.
  • Your Takaful or life insurance premium payments will get an income tax relief of up to RM3,000.
  • Your EPF contributions or any approved pension funds will get an income tax relief of up to RM4,000.
  • Civil servants who are registered under the pension scheme will get a tax relief of up to RM7,000.
  • The tax relief for the he Skim Simpanan Pendidikan Nasional (SSPN) or National Education Savings Scheme has increased from RM6,000 to RM8,000.
  • Corporate income tax rate for SMEs has been reduced from 18% to 17% on the first RM500,000 of chargeable income. The balance income will continue to be taxed at 24%.

Tax Exemptions in Malaysia

Tax exemption is when you don’t have to pay tax for certain transactions or income categories. Below are the tax exemptions you should be aware of:

  • Leave passage
  • Medical and dental benefits
  • Scholarships
  • Death gratuities
  • Royalty
  • Income remitted from outside Malaysia
  • Income from research findings
  • Pensions
  • Compensation for loss of employment
  • Interests and dividends earned from particular governments and organisations

Tax Rebates in Malaysia

With tax rebates, a certain portion from total tax is taken out to make it even lower. If you’re a Muslim, you’ll receive Zakat/Fitrah.

The other form of tax rebates is called the spouse tax rebate. If you have a chargeable income of less than RM35,000 per annum, you will get a rebate of RM400.

Do I Need to Pay Income Tax?

Yes. If you’re a resident of Malaysia earning a certain amount each month or year, you’re required to pay taxes. More details on the income breakdown below:

  • Annual income of more than RM34,000 after EPF deductions
  • Annual income of more than RM38,000 before EPF deductions

If you fit in the bracket above, you have to register a tax file and pay your income tax.

There are more aspects you need to consider before you pay income tax.

  • You have been in Malaysia for at least 182 days in a calendar year.
  • You have been in Malaysia for a period of less than 182 days during the year. However, this will be linked to your physical presence of 182 or more days in the following year.

Going on business trips, health treatments, or social visits that don’t exceed 14 days doesn’t exempt you from income tax. These reasons will be accounted for in your consecutive days.

Easiest Ways to Pay Income Tax

How to File Your Income Tax?

If this is going to be your first time filing taxes, you will have to register yourself as a taxpayer. You will receive an income tax number, which informs the Government how much you’re earning.

To get this number, you will have to visit the nearest LHDN branch along with a copy of your MyKad and a recent payslip.

Alternatively, you can also complete the registration process online.

  • Visit the LHDN website under “borang pendapatan online”.
  • Enter all the information in the registration form.
  • Post this, you’ll receive an application number.
  • Upload a copy of your MyKad.
  • Your application will be confirmed by LHDN within a week and you’ll receive a PIN.
  • You will have to visit the LHDN website again.
  • Click on ‘MyTax’ and enter your identity card number and password under ‘First Time Login’.
  • Now you can file your taxes online.

Now that you’re a registered taxpayer, you can start your e-filing process.

  • Start by preparing your salary statement (EA Form). You have to get your EA form your employer before the end of February. This is because you can’t file your returns from 1 March.
  • Ensure you choose the right income tax return form (E, BE, or B).
  • If you’re an individual resident without a business, you just need the BE form.
  • Enter all your information and don’t forget to verify it with the details in your EA form.
  • Post this, you will see a summary of your tax info.
  • The system will also provide your total tax due. Always double check the information provided.
  • And you’re done with your e-filing.

FAQs

Q. How do I file my income tax if I have changed my job recently?

A. You need to make a note of the date you left the company and the tenure you have served at your previous company. You should also contact your former employer and request them to send you the EA form from the previous year.

Once you have received this form, you can proceed with the same e-filing process.

Q. How do I file my income tax if I’m working in a Malaysia company overseas?

A. The salary you earn from working overseas wouldn’t be taxable unless the income you have received is incidental to the Malaysian employment. This is according to the Section 13(2)(c) of the Act.

Although, you should inform the LHDN that you’re working overseas to avoid getting penalised for not filing your taxes.

Q. How do I make changes to my income tax return form?

A. You cannot make modifications to your income tax form if you have chosen e-filing, according to the LHDN. What you can do is submit your appeal for amendments on or before 20 April 2018. This will help you avoid any penalties being imposed.

Q. When can I expect my tax refund?

A. Once you have submitted your income tax return form, you can expect the refund to be credited to your account automatically within 30 days. This is when you have overpaid in taxes and are entitled to a refund.

Q. Are there any benefits of early tax form submission?

A. Yes. You will get faster tax refunds, avoid tax penalties, and you can prevent tax return identity theft.

Related Reads

reTH65gcmBgCJ7k
This Page is BLOCKED as it is using Iframes.