Malaysia Personal Income Tax Guide 2013 – Rates, Exemptions, Rebates, Reliefs and More

April 24, 2013 by Hann Liew

Tax returns can be a daunting matter, as there are many financial, technical and even legal considerations to be made when you file it in at Lembaga Hasil Dalam Negeri (LHDN or Hasil).  Remember that you file in 2013, but for the 2012 calendar year of income and expenses. This guide was written for the January-December 2012 tax year, and we will be sure to update this guide whenever the government of Malaysia decides to make changes to the tax code in 2013 and beyond.

Do you earn more than RM29,775.00 per year (about RM2,480 per month) including all benefits, allowances, bonuses, overtime and commissions? You need to have a tax file with your income tax automatically deducted from your income, and reading this guide could save you up to RM100s on your tax expense!

If you earn less than RM29,775.00 per year, you don’t have to open a tax file and should not be paying any tax. If your employer is still deducting tax from your salary you should claim it all back. Read this guide to find out how!

If you are a salaried worker or civil servant under a Potongan Cukai Bulanan (PCB) or Monthly/Schedular Tax Deduction (MTD) system, you may be overpaying (or underpaying!) RM100’s of tax. Use our income tax calculator to find out how much you should be been paying, and how much you have actually been paying under the MTD system.

If you are self-employed or own your own business you may still be overpaying or underpaying on your tax.

For both employees and businesspeople, there are many widely known and less widely known ways to legally and legitimately reduce your tax via exemptions, relief and rebates.

Resident of Malaysia Income Tax Rate Table for 2012 (for filing in 2013)

The personal income tax rate for Residents of Malaysia follows a progressive tax schedule, this means that the higher your chargeable income, the higher the tax rate you will have to pay.

For most non-residents (people who stay in Malaysia less than 182 days per year) the tax rate is 26% on all income earned in Malaysia with the exception of some professions which can be taxed at 15% (Public Entertainers etc) and 10% (payment for equipment servicing, technical advice and rent).

Note that your chargeable income is not the same as your gross salary or actual income for the year (in fact chargeable income is usually much lower), more on this later.

In the Malaysia Budget 2013 tabled in September 2012, the Government announced a tax rate reduction of 1% for all taxpayers with a chargeable income of RM50,000 or less. Remember this is only effective in 2013 (ie when you file your taxes in 2014). For assessment year 2012 (filing in 2013), the following rates apply:

Chargeable Income Tax Rate Cumulative Tax
From RM0 – RM2,500 0% RM0
From RM2,501 – RM5,000 1% RM25
From RM5,001 – RM10,000 3% RM175
From RM10,001 – RM20,000 3% RM475
From RM20,001 – RM35,000 7% RM1,525
From RM35,001 – RM50,000 12% RM3,325
From RM50,001 – RM70,000 19% RM7,125
From RM70,001 – RM100,000 24% RM14,325
RM100,001 and Above 26%

If your chargeable income was RM20,000 you will have to pay RM475 of tax. This can be done by either calculating each tax rate one by one (0% x RM2,500 + 1% x RM2,500 + 3% x RM5,000 + 3% x RM10,000 = RM475) or using the Cumulative Tax column.

If your chargeable income was RM25,000, you will have to pay RM475 + (7% x RM5,000) = RM475 + RM350 = RM825 of tax.

Chargeable Income

How do I calculate chargeable income?

Chargeable Income = Taxable income – Tax exemptions – Tax Reliefs

Example:

You have RM60,000 salary, RM1,000 local bank interest income and RM10,000 property rental income a year, so your taxable income is RM71,000. You get  the standard RM9,000 individual tax relief as well as the RM6,000 relief for EPF contributions (your EPF contribution should have been 11% of RM60,000, ie RM6,600 but you only get to minus off max RM6,000). All local bank interest income is Tax Exempted (see below).

So your Chargeable Income is

Chargeable Income = RM71,000 – RM1,000 – (RM 9,000 + RM6,000) = RM55,000.

Using the table above, your income tax for the year is RM3,325 + (19% x RM5,000) = RM4,275.00

*This is a simple example, for more information on your actual situation please use our Income Tax Calculator or continue reading this guide.

Taxable Income

Lembaga Hasil Dalam Negeri (LHDN) classifies taxable income as the following:

  1. Business or Profession
  2. Employment
  3. Dividends
  4. Interest
  5. Discounts
  6. Rent
  7. Royalties
  8. Premiums
  9. Pensions
  10. Annuities
  11. Others

Tax Exemptions

Tax exemptions are income items which can be deducted from your taxable income. An example of this is to deduct bank interest income from your taxable income licensed under the local laws. For a full list of tax exemptions please see below:

Leave Passage
Medical and dental benefit
Retirement gratuity
Gratuity paid out of public funds
Gratuity paid to a contract officer
Compensation for Loss of Employment
Pensions
Death gratuities
Scholarships
Cultural Performances
Interest
Dividend
Royalty
Income Remitted from Outside Malaysia
Fees or Honorarium for Expert Services
Income Derived from Research Findings

Tax Relief for Malaysian Residents

What is a tax relief? Simply put, it is a way for you to reduce your chargeable income.

Say you earned RM25,000 from employment in 2012. Assuming that there were no tax rebates or reliefs, your chargeable income will thus be RM25,000 and tax for the year would have been RM825 as we saw before.

Now say the Government decides that all Residents of Malaysia should get a personal tax relief of up to RM9,000 per year. Your chargeable income will now be RM25,000 – RM9,000 = RM16,000 which means that your tax expense is now RM355, saving you a total of RM470 per year.

These are the following reliefs available for Resident Malaysians:

Included in MTD system RM
Self and Dependent 9,000
Life insurance and EPF 6,000
Husband/Wife/Alimony Payments 3,000
Ordinary Child relief (per child) 1,000
Total > 15,000
Not usually included in MTD / PCB system but relevant to most taxpayers RM
Interest expended to finance purchase of residential property. (only for first 3 years) 10,000
Net saving in SSPN’s scheme 6,000
Education Fees (Individual) 5,000
NEW: PRS Voluntary Contribution 3,000
Purchase of personal computer (every 3 years) 3,000
Insurance premium for education or medical benefit 3,000
Purchase of books, journals, magazines and publications 1,000
Complete medical examination 500
Subscription fees for broadband registered in the name of the individual 500
Purchase of sport equipment for sport activities 300
Total 29,300
Not included in MTD system but relevant to certain taxpayers RM
Disabled Individual 6,000
Basic supporting equipment (for disabled self, spouse, child or parent) 5,000
Medical expenses for serious diseases 5,000
Disabled child 5,000
Medical expenses for parents 5,000
Child age 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia @ bachelor degree or above outside Malaysia in program and in Higher Education Institute that is accredited by related Government authorities 4,000
Disabled Wife / Husband 3,500
Child age 18 years old and above, not married and receiving full-time tertiary education 1,000
Premium on new annuity scheme or additional premium paid on existing annuity scheme commencing payment from 01/01/2010 (amount exceeding RM1,000 can be claimed together with life insurance premium) 1,000
Total > 35,500

Tax Rebate for 2012

How is a tax rebate different from a tax relief? A tax relief is a reduction in your chargeable income, a tax rebate is a reduction in your tax expense after you have calculated your tax for the year.

The income tax rebate for 2012 is RM400 for taxpayers with a chargeable income of less than RM35,000.

Example:

Ali, a single man with no children, has a gross employment income of RM29,000. He gets a tax relief of RM9,000 automatically as part of the ‘Self and Dependent ‘ relief and  he paid EPF employee contribution RM3,190 which is less than the RM6,000 limit so he gets the whole RM3,190 off as a tax relief. His chargeable income is RM29,000 – RM9,000 – RM3,190 = RM16,810. Income tax on that is RM379.30.

As Ali has a chargeable income of less than RM35,000, he is eligible for the RM400 tax rebate. With the tax rebate of up to RM400, Ali will pay no income tax for 2012 as is tax expense before the rebate was less than RM400.

What does the PCB / MTD system mean?

The PCB or MTD system means that your employer will automatically deduct a certain amount from your salary every month and pay tax on your behalf, which goes towards paying your tax for the year. This deduction is separate from your Employees Provident Fund (EPF) deduction as that goes towards your Personal Pension and is deducted first. SOCSO and other deductions are not considered under the MTD system. The MTD is then calculated from your Gross Salary minus EPF deduction of up to RM6,000 per year. If you sum up the total MTD for the year, if no deductions are taken into account then the figure will be very close to your actual tax expense for the year, minus or plus a few ringgit here and there.

Some MTD examples:

(1)    In 2012, Ah Chong, a single man with no children, earned a gross salary of RM3,100/month. After deducting his EPF contribution of RM330/month to give his MTD salary of RM2,759, his MTD is to be deducted from his salary by the company is RM31/month.

Ah Chong Gross Salary MTD Salary MTD Deduction Actual Tax Expense Paid too much / (little)
Monthly Amounts RM3,100.00 RM2,759.00 RM31.00 RM30.21 RM0.79
Total for 2010 RM37,200.00 RM 33,108.00 RM372.00 RM362.56 RM9.44

 

(2)    In 2012, Aimi, a single woman with no children, earned a gross salary of RM5,000/month. Her EPF contribution is RM550/month but under the 2010 tax rules only a maximum of RM500/month or RM6000/year can be used to be deducted from gross salary so her MTD salary will be RM4,500/month. Aimi’s MTD will then be calculated to be RM224/month.

Aimi Gross Salary MTD Salary MTD Deduction Actual Tax Expense Paid too much / (little)
Monthly Amounts RM5,000.00 RM4,500.00 RM224.00 RM227.08 RM(3.08)
Total for 2010 RM60,000.00 RM54,000.00 RM2688.00 RM2725.00 RM(37.00)

 

In both example (1) and (2), the difference between MTD deductions paid to the tax office (LHDN) by the employer and the actual tax payable by Ah Chong and Aimi is very small.

Typically your employer will use some standard tables in order to calculate the MTD, but other than marital status and number of children there are no adjustments for any additional tax reliefs or deductions. This is why your employer may have been overpaying for tax on your behalf.

Warning! The converse may be true, as you might have been paid bonuses and other Benefits-in-Kind (BIK) such as allowances and incentives some of which are subject to income tax. This causes your MTD to be much less than your tax expense and your employer may have been underpaying for tax on your behalf.

When should I file my tax returns?

The tax year follows the calendar year, so the 2012 tax year is effective from 1st January 2012 to 31st December 2012. Depending on your income source you can file this anytime from the 1st of January to 15th May/June in the following year, so for the 2012 tax year you will do it before 15th May/June 2012.

Latest Update (April 2013) : The due date for submission and payment of tax payable for non-business income has been deferred to 15 May 2013. 

If you are employed first make sure your employer is paying the correct MTD on your behalf to LHDN. They are legally required to issue you a Form EA/EC at the end of February which tells you how much you earned and how much MTD they paid for you. Next, use our income tax calculator to see how much tax you will be paying taking into account all tax reliefs and rebates.

Submit! Your source of income will determine which form you have to fill up. You can now also do this online at www.hasil.gov.my. The due date for the submission of return forms are as follows :

  1. BE Form, for individuals without business source, the due date is on or before 30th April every year.
  2. B Form, for individuals with business source, the due date is on or before 30th June every year.
  3. M Form, for a non-resident individual without business source, the due date is on or before 30th April every year.
  4. M Form, for a non-resident individual with business source, the due date is on or before 30th Jun every year.
  5. P Form, for partnership, the due date is on or before 30th June every year.

Wait! Any refunds due to you will be refunded automatically. However, if you do not receive your refund you should send an email to callcentre@hasil.gov.my.

Keep Records! You must keep records for 7 years from the date of filing so don’t throw away any receipts or evidence of tax reliefs, keep them in a file sorted by tax year.

Source: www.savemoney.my

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3 comments on Malaysia Personal Income Tax Guide 2013 – Rates, Exemptions, Rebates, Reliefs and More

  1. Sarah Parafina December 12, 2013 at 10:52 am #

    how about foreign worker? are we subject for tax if we are working in Malaysia? is there minimum amount not subject for tax? how much? hope you answer my inquiries, thank you very much!

    • Alex Wong January 13, 2014 at 6:33 pm #

      As long as you are earning in Malaysia, you will be subjected to tax. Question is the amount of your salary?

      • Sarah Parafina January 27, 2014 at 10:12 am #

        ohh,, so is there minimum amount not subject for tax? I will be pay RM2,000/month so it will be RM24,000 yearly. How much will be my tax payable for that year? thank you,

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