Tax Exemption in Malaysia: Allowances and Benefits Explained

Tax season will be dawning upon us soon. You are probably trying to figure out what’s taxable, if your allowances should be included or not and so on.

You’re also probably already worried if you have overpaid your taxes, especially because there’s not much clarification provided when it comes to the benefits, perquisites and allowances that you are receiving from your employer.

It can be very daunting, especially if you’re trying hard to avoid any mistakes when filing your taxes.

Worry not – this is exactly why we have put together a guide to help you understand what’s taxable, what is not and of course how to increase your tax savings and keep more of your hard-earned money for yourself!

Read also our guide on registering income tax in Malaysia, which is a quick guide to MyTax registration.

What is Tax Exemption in Malaysia?

Under the Income Tax Act 1967, tax exemption simply refers to items which will help you reduce your taxable income. These exemptions also refer to specific benefits, allowances or incomes which are provided by your employer. They can also include gifts and perquisites.

What is the difference between perquisites and benefits in kind?

Any benefits received in cash or in kind that can be converted into money is a perquisite. As long as this is received from your employer, it is considered a perquisite.

If received in kind, such items must have money’s worth and are convertible into money. It simply means that you can actually sell, assign, transfer or convert said perquisite into cash.

A common example of perquisite is meal allowance or monthly phone or internet bill allowance.

On the other hand, benefits-in-kind are perks received from your employer which cannot be converted into cash. For example, medical benefits or dental benefits.

How Tax Exemption Applies to Statutory Income

At this point, we already know that your statutory income is all the income you earn before any deductions are applied. This determines how much tax you will pay after deductions.

That said, there are also a handful of incomes, like special allowances that can be exempted, resulting in a lower total taxable income.

For example some perquisites like travel allowance are exempted from tax, up to a maximum limit. Any performance based rewards provided by your employer (depending on purpose), is also exempted from taxation (maximum limit is applicable).

In the next section, let’s take a look at some of the allowances, perquisites, gifts, and benefits which are tax-exempted.

Total Tax-Exempt Allowances, Perquisites, Gifts, and Benefits

The easiest way to ensure that you don’t overpay your taxes or report it wrongly, is to ensure that any kind of allowances, perquisites, gifts, or benefits you have received is truly tax-exempt.

We encourage you to look through the table below to see if you have received tax exemption for any benefits or perquisite from your employer, according to LHDN.

Allowances That Are Fully Tax-Exempt vs. Partially Taxable

Type of Exemption Full Exemption Remarks
Travelling Allowance Exempted up to RM6,000 per year for official travel – If allowance is more than RM6000, only partial exemption is applicable
Meal Allowance Exempted up to RM2,400 annually n/a
Parking Allowance Fully tax-exempt n/a
Car Allowance Exempted up to RM2,400 annually – For meals provided during overtime or work-related meals.

Perquisites That Are Fully Tax-Exempt vs. Partially Taxable

Type of Exemption Full Exemption Remarks
Scholarship Fully tax-exempt n/a
Subsidized Loans Fully tax-exempt – Loan must come from internal company funds.
Childcare Allowance Exempted up to RM3,000 annually – For children up to 12 years old

Gifts That Are Fully Tax-Exempt vs. Partially Taxable

Type of Exemption Full Exemption Remarks
Employment Awards Exempted up to RM2,000 – Exemption applies for 10+ years of service, past achievement or service excellence, innovation, or productivity award

– Bonus is not included here

Wedding gift Fully tax-exempt – Only applies to non-monetary gifts for personal appreciation or for specific personal reasons

Benefits-in-kind That Are Fully Tax-Exempt vs. Partially Taxable

Type of Exemption Full Exemption Remarks
Medical Benefits Fully tax-exempt n/a
Vehicle Benefits Limited to the prescribed annual value – Value depends on engine capacity and year of manufacture of the car

While the above may not be exhaustive, we hope that this list will help you identify specifically if allowance is taxable in Malaysia and what they might look like.

For a more in depth explanation as well as examples that will help you understand what can and cannot be included, look through directly on the Public Ruling No. 11/2019 for Benefits in Kind and Public Ruling No. 5/2019 for Perquisites from Employment.

Conclusion

Now that you have the clarification that you need when it comes to tax exemption in Malaysia, we hope that you can accurately file your taxes and avoid overpaying for them.

But why does knowing this matter? Well, it directly impacts how much tax you end up paying, therefore, for every exemption that you qualify for, the lesser tax you pay which means more money for you to save and invest or even spend on yourself or your family.

Hopefully, by closely reviewing these details, you are able to maximize your tax savings. Do consult a professional if you need one.

FAQ: Tax Exemptions in Malaysia

Which allowance is exempt from tax in Malaysia?

Some allowances are exempted from tax in Malaysia. For example, meal allowances, travel allowances (up to RM6,000) are all exempted from tax.

You should only make sure to check if any limits are applicable in terms of amount. Also, keep all the receipts and proof of payments with you for these allowances received.

What Types of Perquisites Are Tax-Exempt?

Scholarships, subsidised loans as well as child care allowances are some perquisites which are tax-exempt in Malaysia. For a full list of perquisites which are exempted from tax, look through the Public Ruling No. 5/2019 published by LHDN.

Are There Limits to Tax-Exempt Gifts or Benefits?

Absolutely, some awards like long-service awards are only tax-exempted for up to RM2,000 in value. If you have received gifts which are larger in value than the maximum amount, the balance after deduction of RM2,000 is indeed taxable.

What Happens If I Overclaim Tax Exemptions?

You must be careful not to overclaim as it can result in penalties. It is considered illegal and therefore you may also face additional tax assessment and even an audit by the LHDN.

It is crucial to keep all the documentation to support the tax claim you make. In the event you have made mistakes, there are channels to amend these mistakes.

Write a letter to detail the mistake with proof provided to be submitted to the office that handles your tax file.

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