Filing your income tax, especially if you’re a newbie, can seem tedious and daunting – but it doesn’t have to be. Here’s a handy guide for the Malaysian taxpayer to help you navigate the complexities of tax codes and forms.

The first thing you should know is that Malaysia follows a progressive income tax rate system, which basically means you pay higher rates on amounts above specific thresholds.

As such, exemptions, reliefs, rebates and deductibles are your friends! Here’s how each of these differs:

1. Exemptions

Exemptions reduce or eliminate your obligation to pay tax on certain portions of your income. They work to exclude specific types of earnings or expenses from your taxable income. More on this below.

2. Reliefs

Tax reliefs are deductions allowed by the government to reduce your taxable income. They are provided for specific expenses or circumstances: upskilling courses, childcare allowances, and sports-related expenses, for instance.

3. Rebates

Tax rebates directly reduce the amount of payable tax. These are applied after the calculation of your tax liability.

Rebates are often given for specific reasons, such as supporting green initiatives or encouraging particular behaviours, which can lead to significant tax savings.

4. Deductibles

These refer to expenses that can be subtracted from your total income before calculating your taxable income. Whereas reliefs and exemptions directly reduce your tax liability, deductibles impact the amount upon which your tax is calculated.

Typical deductibles include business expenses, charitable contributions, and specific educational expenses.

Tax exemptions

Understanding what’s exempt from income tax is crucial for reducing your overall chargeable income. Here’s a breakdown:

• Leave passage: This refers to exemption for local and overseas vacation expenses, limited to three times within Malaysia and once outside the country, not exceeding RM3,000.
• Medical and dental benefits: Exemption for medical benefits provided by employers, including maternity expenses and traditional medicine.
• Retirement gratuity: Fully exempt under specific conditions, including ill health or retirement after age 55.
• Gratuity and compensation: Various types of gratuity and compensation are exempt, depending on the circumstances.
• Pensions and death gratuity: Exempt under certain conditions, such as retirement at age 55 or due to ill health.
• Scholarships and cultural performances: Money paid through scholarships and funds received for approved cultural performances are exempt.
• Income from outside Malaysia: Exemption on foreign-sourced income for individual taxpayers under specific conditions.
• Interest, dividends and royalties are exempt.
• Fees or honorarium for expert services related to validating, moderating, or accrediting franchised education programmes are exempt.
• Others: These include income from research findings, special service awards, green SRI sukuk and bond grants, employment onboard ships, non-Malaysian director’s fees, government grants, travelling allowances, and specific benefits in kind.

For further information, visit the Inland Revenue Board (LHDN) website.

Recent individual tax-relief updates

As we look into individual tax reliefs for 2024, here are the critical updates:

•  Upskilling courses: Tax relief up to RM2,000 for upskilling courses has been extended to Year of Assessment (YA) 2026.
• Lifestyle relief expansion: Now includes fees for self-improvement courses such as language, photography, and sewing.
• Electric vehicle charging facilities: Tax relief up to RM2,500, extended from YA 2024 to YA 2027.
• Childcare allowance: Increased from RM2,400 to RM3,000, effective YA 2024.
• Sports equipment and activities: A new relief has been introduced offering up to RM1,000 for sports equipment and activities expenses.
• Expanded medical treatment expenses: Now includes dental examination and treatment, limited to RM1,000.
• Tax incentive for women returning to the workforce: Extended from YA 2025 to YA 2028.
• Returning expert programme: The application period has been extended to Dec 31, 2027.

How to have a stress-free tax season

• Be prepared: Gather your financial documents early so you have ample time to understand your financial situation and claim all eligible exemptions and reliefs.
• Educate yourself: Brush up on tax regulations, especially recent changes. Knowing what’s exempt and eligible for reliefs can significantly impact your tax liabilities.
• Utilise technology: Leverage online tools and resources to simplify the filing process. Many platforms provide step-by-step guidance.
• Consult professionals: When in doubt, seek advice from tax professionals who can assist you in navigating intricate scenarios and maximise your savings.
• Stay informed: The financial landscape is ever-evolving, so regularly check for updates on tax regulations and incentives to take advantage of potential savings.

This article was first published on MyPF. To simplify and grow your personal finances, follow MyPF on Facebook and Instagram.