March 2020 has arrived and income tax filing for YA 2019 is now officially open. However, filing your taxes when you’re not sure what all the various terms mean can be quite confusing, especially if you’re doing it for the first time.
What’s the difference between chargeable income and taxable income? What is gross income? What are perquisites and benefits-in-kind? And for goodness’ sake, what is the difference between a tax exemption, tax relief, and tax rebate? If you have any of these questions running through your head, go through our Malaysia Income Tax Glossary before you do any filing!
The sum of all your taxable income that will be automatically totalled for you on your online tax return form. It includes income from employment, rent, royalties, and so on, but does not include non-taxable income.
Benefits received by employees which are not included in their salary. There are a few tax exemptions for benefits-in-kind, but benefits like cars, furniture, and personal drivers are subjected to income tax. Each benefit-in-kind must be prescribed a monetary value in order to be taxed, and this can be done through the formula method or the prescribed method.
Chargeable income = Gross income – tax exemptions – tax deductions – tax relief. The tax rate you will be charged with increases as your chargeable income does, which is why you should take full advantage of the various tax reliefs and so on to bring down your chargeable income amount.
Officially called the Yearly Remuneration Statement, the EA form is a statement of your annual income, monthly tax deductions, EPF contributions, etc. It is issued by your employer at the beginning of each year; your employer has a legal obligation to provide you with it by the last day of February.
Just like the EA Form for private employees, the EC Form is the Yearly Remuneration Statement for government employees.
The section of the ezHasil website where you can register yourself as a new taxpayer for the first time. It’s also where you can obtain or check for your income tax number online.
LHDN’s main website for all things income-tax related. It’s divided into sections where you can register as a taxpayer (e-Daftar), file your taxes (e-Filing), pay your taxes (ByrHASiL), and so on.
The amount of income you earn before any deductions are made, eg EPF, SOCSO, etc. This includes your basic salary, commission, bonuses, etc. So, if your basic monthly salary is RM4,000 with RM100 travel allowance, your gross annual income is RM49,200.
Income Tax Number
The unique reference number assigned to you by LHDN. To obtain your income tax number, you should register online through e-Daftar or in person. If you’ve ever been employed, you may already have a tax number – you can check online or by calling LHDN.
Inland Revenue Board Malaysia (IRBM)
The government agency in charge of administering, assessing, collecting, and enforcing payment of direct taxes in Malaysia. It is under the Ministry of Finance and also known as Lembaga Hasil Dalam Negeri (LHDN).
Lembaga Hasil Dalam Negeri (LHDN)
Also known as Inland Revenue Board Malaysia (IRBM), this is the government agency responsible for administering, assessing, collecting, and enforcing payment of direct taxes in Malaysia.
Monthly Tax Deductions (MTD)
The compulsory mechanism where employers deduct monthly tax payments from a taxable employee’s salary. Your MTD does not necessarily represent your final tax sum; it doesn’t take into account the tax reliefs you are eligible for. Also known as Potongan Cukai Bulan (PCB).
A perk or benefit given to you by your employer. You need to be aware of the perquisites you are receiving because they can either be taxable or tax exempt, thus affecting your total chargeable income. Some examples are travel allowances (exempt up to RM6,000), childcare (exempt up to RM2,400), and parking allowances (fully exempted).
Required for first-time logins into e-Filing on ezHASIL. You have to go to your nearest LHDN branch to obtain it.
The range of incomes being taxed at a given rate. In a progressive tax system, you’re taxed a higher rate depending on what tax bracket you fall under. So, if your annual income is RM43,000, you will fall under the RM35,000–50,000 tax bracket.
Granted for the contribution of “Gifts and Donations” to the government or a government-approved charitable organisation. You can deduct up to 7% of your aggregate income.
Income that you don’t need to pay taxes for. This type of income is excluded from counting as your taxable income. For example, the interest you earn off a fixed deposit or certain dividend payments are fully exempted from income tax. Things like parking and childcare allowances (which fall under Perquisites above) can also be exempted from tax.
The percentage at which you will be taxed. Tax rates are applied to your chargeable income amount and vary according to your income bracket.
A reduction in your chargeable tax amount. Unlike tax reliefs and tax deductions, tax rebates come into play after you’ve determined your chargeable income. An example is a tax rebate for zakat/fitrah, which is subject only to the maximum of tax charged.
If you’re subject to monthly tax deductions, you may find once you’ve filed your taxes that you’ve paid more than you actually owe. Usually, this is because MTDs don’t take into account tax reliefs and so on. In this case, you’re entitled to a tax refund from the government, which you can get by providing your bank details.
Claiming for tax relief when you file taxes allows you to reduce your chargeable income up to a certain amount. You can get tax relief for lifestyle purchases such as books and smartphones (up to RM2,500), for having children below the age of 18 (RM2,000 per child), and many more. Remember, you claim for tax relief a year later after the YA in question – and make sure to keep all your receipts for the next 7 years as proof!
Gross income – tax exemptions. Take the total amount of income you are earning and minus off the types of income that isn’t taxable. Let’s say Ahmad has a gross annual income of RM50,000 which consists of RM48,000 in salary and RM2,000 in parking allowance. Because parking allowance is tax exempted, his taxable income is only RM48,000.
Year of Assessment (YA)
The year in which the income tax is calculated and charged, starting from 1 January and ending 31 December. When you file your taxes in 2019, you are basing it on your income earned during YA 2018.
Now that you know what each of these income tax terms mean, we hope that you’re a bit more prepared to face filing your taxes in 2019. But if you’re still not too confident about the processes, check out our guides below:
- How To File Your Taxes For The First Time
- Everything You Should Claim As Income Tax Relief Malaysia 2020 (YA 2019)
- Malaysia Personal Income Tax Guide 2020 (YA 2019)
- Understanding Income Tax Reliefs, Rebates, Deductions, And Exemptions In Malaysia
Find more income tax related content in our Income Tax page.