Individual Income Tax in Malaysia |

What Is Individual Income Tax in Malaysia?

Individual income tax in Malaysia is a progressive tax system imposed on earnings made by individuals within the country. It applies to various types of income, such as salaries, bonuses, commissions, rental income, and freelance earnings. True to the principles of progressive taxation, higher income levels are taxed at higher rates to ensure fairness across different earning brackets. Malaysia’s system not only caters to local residents but also to foreigners working or residing within its borders.

The Inland Revenue Board of Malaysia (LHDN) oversees the collection and enforcement of income tax, ensuring that all eligible taxpayers comply with the rules and benefit from applicable reliefs and rebates.

Who Is Subject to Income Tax in Malaysia?

Income tax obligations vary based on residency status, with different rules for residents and non-residents.

Residents: Taxation Criteria

You are considered a resident for tax purposes if you stay in Malaysia for 182 days or more within a calendar year. As a resident, you enjoy progressive tax rates, as well as eligibility for multiple reliefs and rebates that can significantly lower your tax burden.

Non-Residents: Taxation at Flat Rates

Non-residents, on the other hand, are taxed at a flat rate of 30% on all income earned in Malaysia. They do not qualify for the various tax reliefs or rebates available to residents, making their effective tax cost generally higher.

Malaysia Personal Income Tax Rates (YA 2023 to YA 2025)

Tax Rate Structure Explained

The following progressive tax brackets apply for the Years of Assessment 2023 to 2025:

Chargeable Income (RM)	Tax on First Amount (RM)	Tax Rate on Excess (%)
0 – 5,000	0.00	0%
5,001 – 20,000	0.00	1%
20,001 – 35,000	150	3%
35,001 – 50,000	600	6%
50,001 – 70,000	1,500	11%
70,001 – 100,000	3,700	19%
100,001 – 400,000	9,400	25%
400,001 – 600,000	84,400	26%
600,001 – 2,000,000	136,400	28%
Above 2,000,000	528,400	30%

Example: How to Calculate Your Income Tax

Suppose your chargeable income is RM75,000. Here’s a simple breakdown:

First RM5,000 @ 0% = RM0
Next RM15,000 @ 1% = RM150
Next RM15,000 @ 3% = RM450
Next RM15,000 @ 6% = RM900
Next RM20,000 @ 11% = RM2,200
Remaining RM5,000 @ 19% = RM950

✅ Total Tax Payable = RM4,650

Understanding Tax Reliefs in Malaysia

Tax reliefs are powerful tools to reduce your chargeable income, directly lowering how much tax you owe.

Personal and Family Reliefs

Relief Type	Amount (RM)
Individual	9,000
Spouse (no income)	4,000
Disabled Individual	6,000
Disabled Spouse	5,000

Child-Related Reliefs

Parents can benefit significantly:

RM2,000 per child (under 18 years)
RM8,000 for children pursuing tertiary education
Additional RM8,000 for disabled children in higher education

Medical and Health Expenses Reliefs

Expenses for your parents’ medical care, serious illnesses, or fertility treatments can earn you up to RM10,000 in relief.

Education and Skills Development Reliefs

Self-development is rewarded too:

RM7,000 for education fees
RM2,000 for upskilling/reskilling courses

Insurance, Retirement, and Lifestyle Reliefs

EPF + Life Insurance: Up to RM7,000 combined
PRS Contributions: Up to RM3,000
Lifestyle purchases (books, electronics, sports gear): RM2,500

Exploring Tax Rebates in Malaysia

Tax rebates provide direct reductions from the tax payable after chargeable income has been assessed, offering an additional method to reduce your final tax bill.

Eligibility and Rebate Amounts

Rebate Type	Eligibility	Rebate Amount (RM)
Individual Rebate	Chargeable income ≤ RM35,000	400
Spouse Rebate	Chargeable income ≤ RM35,000 + spouse relief claimed	400
Joint Assessment Rebate	Combined chargeable income ≤ RM35,000	800
Zakat/Fitrah Rebate	Actual amount paid	Full amount paid
Departure Levy Rebate (Religious Travel)	Departure levy paid with supporting documents	Actual levy amount

These rebates can significantly cut your tax liability if you meet the specific requirements. Always ensure documentation, especially for zakat payments and religious travel, is properly kept.

Benefits-in-Kind (BIK) and Employee Perquisites

What Are Benefits-in-Kind (BIK)?

Benefits-in-Kind (BIK) refer to non-cash perks provided by employers, such as company vehicles, accommodation, or club memberships. Under the Malaysian Income Tax Act 1967, most BIKs are taxable, unless an explicit exemption is granted.

Taxable vs Non-Taxable BIK

Benefit	Taxable?	Details
Company Car (Petrol/Diesel)	Yes	Prescribed Value or Formula Method
Company Car (EV)	Yes	Formula Method (4%–7%)
Mobile Phone (Work Use)	No	Strictly for business
Meals at Workplace	No	Must be provided in-office
Housing Accommodation	Yes	Based on 30% of gross income or market rental

Prescribed Values for Cars, EVs, and Furnishings

Motocar Cost (New)	Annual Prescribed Value (Car)	Annual Prescribed Value (Petrol)
Up to RM50,000	RM1,200	RM600
RM50,001 – RM75,000	RM2,400	RM900
RM75,001 – RM100,000	RM3,600	RM1,200
Above RM500,001	RM25,000	RM3,000

Special Note: Electric Vehicles (EVs) enjoy lower tax rates compared to petrol/diesel vehicles, making them a tax-savvy choice.

Understanding Value of Living Accommodation (VOLA)

If your employer provides housing, the value is considered taxable. Calculation methods vary depending on whether you are a general employee, director, or working in remote areas.

General Employees: Lower of 30% gross salary or market rental.
Directors (controlled companies): Full market rental value.
Remote Areas: 3% of gross salary.

Examples of Common BIK Calculations

Scenario	Taxable Amount
RM100,000 Petrol Car + Maintenance	RM25,000 taxable
RM200,000 Electric Car	RM14,000 taxable (7% rule)
Company Paid Rent (RM36,000)	RM36,000 taxable (if ≤ 30% gross salary)

Perquisites and Their Tax Treatment

Types of Perquisites in Malaysia

Perquisites include cash benefits and allowances tied to your employment. These can be:

Housing allowances
Transport and entertainment allowances
Employer-paid insurance
Waived loans
Sponsored trips and awards

Taxable vs Exempted Perquisites

✅ Commonly Exempted Perquisites:

Perquisite	Exemption Limit	Notes
Petrol/Travel Allowance for official duty	RM6,000/year	Must be properly documented
Childcare Subsidy	RM3,000/year	For children under 12
Parking Allowance	Fully exempt	If work-related
Meal Allowance (Overtime/On Duty)	Fully exempt	-

❌ Fully Taxable Perquisites:

Practical Examples of Perquisites Taxation

Scenario	Tax Treatment	Explanation
RM5,000 Transport Allowance (official)	Exempt	Documented usage
RM8,000 Housing Allowance	Fully Taxable	Personal benefit
RM3,500 Gift Voucher	Fully Taxable	Cash-convertible value

Understanding PCB (Potongan Cukai Bulanan)

What Is PCB and Why It Matters?

PCB, or Monthly Tax Deduction, simplifies tax payments by spreading tax obligations across the year. Instead of paying a lump sum at the end, small portions are deducted monthly by employers based on projected annual income and reliefs.

Steps to Calculate PCB Correctly

Step	Action
1	Determine Total Annual Income
2	Deduct EPF Contributions (capped at RM4,000)
3	Apply Other Tax Reliefs
4	Calculate Chargeable Income
5	Apply Progressive Tax Rates
6	Deduct Rebates
7	Divide Tax Payable by Months Remaining

Common Mistakes in PCB Calculation

Omitting SOCSO contributions from reliefs
Misclassifying bonuses and commissions
Failing to update marital status or dependents
Ignoring BIK and VOLA values
Using outdated salary figures

⚡ Proper PCB management not only prevents penalties but also avoids surprise tax payments during annual filing!

Frequently Asked Questions (FAQs)

1. Who needs to file an income tax return in Malaysia?

Anyone earning above the prescribed income threshold, whether resident or non-resident, must file a return with LHDN.

2. How do I know if I’m considered a tax resident?

If you stay 182 days or more in Malaysia within a calendar year, you qualify as a tax resident.

3. Are gifts and vouchers taxable?

Yes, unless the gift is non-cash and valued below RM500 per year. Otherwise, full taxation applies.

4. Can I claim childcare expenses?

Yes, up to RM3,000 per year for children under 12, provided it is paid to a registered childcare center.

5. Is EPF contribution deductible for tax purposes?

Absolutely. Up to RM4,000 combined with life insurance premium payments.

6. What happens if PCB deductions are wrong?

You may end up underpaying or overpaying your tax. It’s important to reconcile your PCB payments during annual filing to avoid penalties or unnecessary refunds.

Conclusion: Mastering Your Malaysian Tax Filing

Understanding the ins and outs of Individual Income Tax in Malaysia can help you legally minimize your tax burden and avoid unnecessary stress. From knowing the progressive tax rates to leveraging every allowable relief, rebate, and exemption, taxpayers have plenty of opportunities to optimize their financial outcomes.

Stay compliant, stay informed, and maximize your tax savings!