Malaysia Income Tax Made Easy: Exemptions, Deductions, Rebates & Refunds You Should Know (YA 2023)

While tax reliefs are what usually come to mind when filing income tax (and the reason we keep all those receipts!), they're just one piece of the puzzle. This article dives deeper into the world of Malaysian tax, exploring how tax rebates, deductions, and even exemptions can all work together to significantly reduce your tax burden and potentially lead to a bigger refund. 

1. What is Tax Exemptions? 

2. What is Tax Deductions? 

3. What is Tax Rebates? 

4. What is Tax Refunds? 

5. FAQs

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What is Tax Exemptions?

Good news for Malaysian taxpayers! We may not need to pay tax on our entire income. The government offers tax exemptions, excluding specific income sources from your overall chargeable income. These exemptions typically appear in a dedicated section of your EA form, ensuring they aren't included in the final taxable amount. 

While your EA form might handle some exemptions automatically, understanding them is still beneficial. This is especially true if you're self-employed or receive numerous perks and benefits. Knowing your full range of tax exemptions allows you to understand what you're entitled to and potentially reduce your tax bill. 

Examples of tax-exempt income include: 

1. Petrol card, petrol, or travel allowances and toll rates (up to RM6,000)

The total amount provided by the employer is taxable. However, there's an exemption for up to RM6,000 per annum if the allowances/perquisites are utilized for official duties*. Records related to the claim for official duties and the exempted amount must be retained for seven years for audit purposes.

  2. Childcare subsidies/allowances (for children up to 12 years old) (up to RM2,400) 

The total amount provided by the employer is taxable. However, there's an exemption for up to RM2,400 per annum*. 

3. Meal allowances* (Fully exempted) 

Meal allowances provided by the employer are fully exempted from taxation. 

4. Parking fees/allowances* (Fully exempted) 

Parking fees and allowances provided by the employer are fully exempted from taxation. 

5. Digital devices (up to RM5,000) 

Computers, tablets, phones, or any other work-related equipment are eligible for exemption up to RM5,000. 

6. Award (up to RM2,000) 

The total amount paid by the employer for awards is taxable. However, there’s an exemption for up to RM2,000 per annum for specific types of awards*: long service (more than 10 years of employment with the same employer), past achievements and service excellence, innovation, or productivity awards. 

7. Interest on loan subsidies: 

Interest on loans of total of RM300,000 for housing/passenger motor vehicles and education are taxable. 

*Exemptions are not extended to directors of controlled companies, sole proprietorships, and partnerships. 

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What is Tax Deductions? 

Don't forget, your charitable contributions can benefit you too! Tax deductions allow you to further reduce your taxable income by subtracting certain expenses, including donations to charitable organizations.   

Think receipts for donations, gifts of money, and contributions to approved causes – these can all lighten your tax burden.  The key is making sure the recipient is approved by the Lembaga Hasil Dalam Negeri (LHDN). Luckily, you can find a complete list of approved institutions on their website.  

That said, what constitutes LHDN-approved donations, gifts, and contributions? Is there a limit to how much you can deduct? Here, we answer some basic queries about tax deductions for donations and gifts. 

1. Contributions made to charities, sports activities, and approved funds/institutions (including those aimed at combating COVID-19) are eligible for deduction, up to a maximum of 10% of your aggregate income. 
   

2. Different types of donations, gifts, or contributions are subject to varying limits and restrictions. 

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What is Tax Rebates? 

Tax rebates provide a direct reduction in the amount of tax payable to the Inland Revenue Board of Malaysia (LHDN). These rebates effectively reduce the final tax bill, providing relief to taxpayers. In Malaysia, tax rebates may include: 

1. Individual Tax Rebate (Amount: RM400) 

You’re automatically eligible for this rebate if your chargeable income (after tax reliefs and deductions) is below RM35,000. 

2. Separate Assessment of Husband & Wife (Amount: RM400 each) 

If husband and wife are separately assessed and the chargeable income of each does not exceed MYR 35,000 

3. Joint Assessment of Husband & Wife (Amount: RM400 for each partner)   

You're eligible for this rebate if your chargeable income (after tax reliefs and deductions) is less than RM35,000, and you've claimed the tax relief of RM4,000 for your spouse. However, there's a condition: your spouse should either have no income source or have chosen joint assessment under your name. 

4. Zakat/Fitrah Rebate (Amount: Equivalent to zakat/fitrah paid) 

This rebate is applicable to the obligatory payment of zakat and fitrah during the assessment year. 

5. Departure Levy Rebate for Umrah/Religious Travel (Amount: Equivalent to departure levy paid) 

This rebate applies to individuals departing Malaysia by air for umrah or other religious pilgrimages (excluding hajj). To claim this rebate, ensure you have the following documents: 

• Your boarding pass 

• For umrah: A copy of the issued visa 

• For other religious pilgrimages: Written verification from a recognized religious body endorsed by the Committee for the Promotion of Inter-Religious Understanding and Harmony Among Adherents (JKMPKA) and the Department of National Unity and Integration (DNUI) in the Prime Minister’s Department. 

*This rebate is applicable for a maximum of two trips in a lifetime. 

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What is Tax Refund?

 In Malaysia, a tax refund happens when you've paid more in taxes than you owe.  

EA form D(1) MTD paid for the year (FTY) - Final tax amount when submitting your e-BE  = Tax refund amount. 

This can happen for a few reasons: 

1. Monthly Tax Deductions (MTD): If your employer withholds taxes each month (MTD), it might not account for all your deductions. 

2. Additional Tax Reliefs, Deduction and Rebates: Did you buy approved items like books, a computer, or incur medical expenses? These can qualify for tax relief, lowering your tax bill.  
   

The good news? When you file your tax return, the extra you paid gets returned to you! This refund typically arrives within 30 working days of E-filing (or 90 working days for manual submission) and goes straight to your registered bank account.  

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FAQs 

1. What forms do I need to fill out? 

- Individuals with no business income, would need to fill up:- 

Form BE : Resident Individual Who Does Not Carry On Business 

- Individuals with business income, would need to fill up:- 

Form B - Resident Individual with Business, Employment and Other Income 

Form M : Non-Resident Individuals With Business, Employment and Other Income 

Form BT - Resident Individual With Business, Employment and Other Income (Knowledge Workers / Expert Workers) 

Form MT - Non-Resident Individuals With Business, Employment and Other Income (Knowledge Workers) 

2. What is the late submission penalty? 

Failure to submit ITRF within the stipulated period is an offence and is subject to a penalty/tax increase under the Income Tax Act 1967. 

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Understanding tax exemptions, deductions, rebates, and refunds is essential for effective tax planning and compliance in Malaysia. By familiarizing yourself with these concepts and leveraging them strategically, you can optimize your financial outcomes while fulfilling your tax obligations to the nation.  If you have any questions, our team at Synergy is always happy to help (📞+6 010-277 0718 or 📩 info@synergy-outsourcing.com).