Tax Exemptions: What Part Of Your Income Is Taxable?

by Jacie Tan

Income Tax

Tax Exemptions: What Part Of Your Income Is Taxable?

When you file your personal income taxes, a main section of your form will be devoted to declaring the income you earn. This can be as simple as simply checking the figure on your EA form and filling it in. But when things like additional allowances and benefits come into play, it may seem a little more complicated. 

What counts as "income from employment?"

Statutory income from employment refers to not only your monthly salary, but also any commission, bonus, allowances, perquisites, benefits-in-kind, and even accommodation. Of course, there are certain types of income within this list that does not have to be included in your income for tax purposes – in other words, income that is exempted from tax. If you are given a tax exemption up to a certain value, you don't have to include that amount in your declaration of income.

Perquisites, benefits-in-kind, and tax exemptions

A perquisite is a perk or benefit given to you by your employer, like travel and medical allowances. Benefits-in-kind are also a type of benefit received by employees which are not included in their salary, such as cars, furniture, and personal drivers. Regardless of what they’re called, you have to keep track of the additional benefits given to you because they may either be taxable or tax exempt. Here is a list of perquisites and benefits-in-kind that you can exclude from your employment income.

Perquisite/Benefit-in-kind Tax Exemption Limit (per year)
Petrol, travel, toll allowances Up to RM6,000. If the amount exceeds RM6,000, further deductions can be made in respect of amount spent for official duties.
Parking allowance, including parking rate paid by employer directly Actual amount expended
Meal allowance received on a regular basis Actual amount expended
Medical benefits (including traditional medicine and maternity expenses) Actual amount expended
Child care allowance for children up to 12 years old Up to RM2,400.
Benefit, whether in money or otherwise, for past achievements, service excellence, or long service award, etc Up to RM2,000.
Gift of fixed line telephone, mobile phone, etc registered in employee’s name Limited to 1 unit for each asset
Monthly bills for phone or broadband line registered in employee’s name Limited to 1 line for each category of asset
Company goods provided free or at a discount to employee, spouse, or unmarried children Up to RM1,000
Company goods provided free or at a discount to employee, spouse, or unmarried children Amount of discount or amount of services provided free
Subsidised interest for housing, education, or car loan Fully exempted if total loan amount does not exceed RM300,000. For exceeding amounts, there is a calculation formula that you can find in the explanatory notes to the BE form.
Leave passage (vacation time paid for by employer) Exempted up to 3x in a year for leave passage within Malaysia (fares, meals, accommodation) and 1x outside Malaysia (up to RM3,000 for fares only)

*These tax exemptions are not applicable for directors of controlled companies, sole proprietors, and partnerships.

What happens if you need to declare a benefit-in-kind as part of your employment income? You can’t exactly put down "one car and one driver" on your form as part of your income, so you’ll have to prescribe it a monetary value in order to be taxed. This can be done through the formula method or the prescribed method. If you would like to know more about these methods of calculation, PwC offers a good explanation in its Malaysian Tax Booklet.

Other tax exemptions and sources of income

You are required to pay taxes for your income arising from any rent received, but there is a 50% tax exemption in this category for Malaysian resident individuals. The exemption is limited to RM2,000 per month for each residential home rented out, and the residential home must be rented under a legal tenancy agreement. Also, the exemption is given for a maximum of three consecutive years.

Interest earned from the following institutions are tax exempt: licensed banks, Islamic banks, or finance companies, developed financial institutions, Lembaga Tabung Haji, the Malaysia Building Society Berhad (MBSB), and the Borneo Housing Finance Berhad. Dividends received from exempt accounts of companies, cooperative societies, and approved unit trusts are also exempt from tax.

Women returning from the workforce are eligible for income tax exemption under TalentCorp’s Career Comeback Programme if they were away from the workforce for at least two years.

Other tax exemptions you may take advantage of are:

  • Compensation for loss of employment
  • Death gratuities
  • Income derived from research findings (50% exemption)
  • Pensions after the age of retirement or ill health
  • Retirement gratuity after the compulsory age of retirement after 10 years of continuous service or ill health
  • Scholarships

Don’t overpay your taxes

Malaysia operates on a self-assessment system when it comes to income tax, so the taxpayer is responsible for calculating their own chargeable income and payable tax. That’s why you need to be aware of which parts of your income is taxable or exempt. Hopefully, this article has helped highlight some tax exemptions you weren’t aware of before so you can file your taxes more accurately. 

If you have any questions, do let us know in the comments!

More on Malaysia income tax 2019

Find more income tax related content in our Income Tax page.