Personal Income Tax in Malaysia

How Malaysia's tax system works (Resident vs Non-Resident)

Malaysia operates a territorial tax system with progressive rates for residents and flat rates for non-residents.

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The fundamental distinction between these categories determines tax obligations, applicable rates, and available reliefs.

Tax Residency Status is determined primarily by physical presence in Malaysia, not citizenship or nationality. The determination follows these criteria:

Resident individual

An individual qualifies as a tax resident under any of the following conditions:

Physically present in Malaysia for 182 days or more during the calendar year.
Present for less than 182 days but linked to another period of at least 182 consecutive days in an adjoining year.
Present for 90 days or more during the year and has been resident/present for 90 days in any three of the four preceding years.
Resident for the three preceding calendar years and will be resident in the following year.

Important note: Days do not need to be consecutive. Temporary absences for service-related matters, illness of immediate family, or social visits not exceeding 14 days are considered part of continuous presence.

Non-resident individual

An individual who does not fulfill the residency conditions above is classified as a non-resident, regardless of citizenship.

Tax treatment comparison
Aspect	Resident	Non-Resident
Tax Rate	Progressive (0-30 %)	Flat 30 %
Personal Reliefs	Entitled	Not entitled
Tax Rebates	Available (up to RM800)	Not available
Foreign Income	Exempt until 2036*	Not taxed
Filing Form	BE/B	M
*Subject to specific conditions

Who needs to pay income tax in Malaysia?

You are required to file income tax in Malaysia if you meet any of the following conditions:

Category	Tax Filing Criteria	Additional Notes
Employees	Annual employment income exceeds RM 34,000 (after EPF deductions). Receiving income from multiple sources (e.g., employment + business/rental). Previously registered with LHDN and have an active tax file.	Applies to individuals earning a fixed salary or wages. Dual-income earners must declare all sources.
Business owners / freelancers	Annual gross business income exceeds RM 37,333 (after EPF deductions). Operating as a sole proprietor, partnership, or self-employed professional. Earning income through gig economy platforms (Grab, food delivery, online selling, etc.).	Must maintain proper business records and file under business income.
Foreigners / expatriates	Employed in Malaysia for more than 60 days in a calendar year. Tax residents (182+ days) follow resident tax treatment. Non-residents (less than 182 days) are taxed at flat rates.	Residency status determines applicable tax rate and relief eligibility.

You are not required to file if:

Employed in Malaysia for less than 60 days.
Employed on board a Malaysian ship.
Age 55 or above receiving pension from Malaysian employment only.
Only receiving bank interest or tax-exempt dividends.

Starting YA 2024, the Inland Revenue Board (LHDN) mandates that all taxpayers submit Income Tax Return Forms (ITRF) electronically through the MyTax portal. Foreign-source income received by resident individuals is exempt from tax until 31 December 2036, provided the income has been subjected to tax in the country of origin.

Non-taxable income

Employment-related exemptions

Leave passages are exempt up to three local trips or one overseas trip (RM 3,000 max) per year.

Medical, dental, maternity, and traditional medicine benefits from employers qualify for full exemption, as do travelling allowances up to RM 6,000 for personal vehicles used on official duties.

Company service awards up to RM 1,000 and income from employment on registered merchant ships are also non-taxable.

Investment and financial income

Dividends from single-tier companies, approved unit trusts (e.g., Amanah Saham Bumiputera), cooperatives, and certain exempt accounts face no tax.

Foreign-sourced income (FSI) for individuals remains exempt until 2026 if taxed abroad or meeting headline rate thresholds; companies get exemptions on dividends with 15 percent+ foreign tax.

Interest from approved institutions like EPF, government securities, or licensed banks (non-business linked) is exempt.

Government and other exemptions

Pensions from Malaysian government service, scholarships, cultural performance fees (Minister-approved), and government grants/subsidies are fully exempt.

Non-Malaysian directors' fees from Labuan entities qualify until YA 2025, and green SRI sukuk/bond grants (2021-2025 issuances) are non-taxable.

Expanded tax reliefs (Effective YA 2025)

Medical expenses for self/spouse/child: Increased to RM 10,000 (from RM8,000).
Disabled individual relief: Increased to RM 7,000 (from RM 6,000).
Disabled spouse relief: Increased to RM 6,000 (from RM 5,000).
Disabled child relief: Increased to RM 8,000 (from RM 6,000).
Medical expenses for parents/grandparents: Expanded coverage to include grandparents.

New Dividend Tax: A 2 percent tax on local dividend income exceeding RM 100,000 earned by individual shareholders (effective YA 2024).

Malaysia's income tax rates and brackets

Resident tax rates and brackets

Malaysia employs a progressive tax system for resident individuals, where higher income earners pay higher tax percentages on incremental income.

Tax Rates
Chargeable Income (RM)	Tax Rate ( %)	Tax Calculation (RM)	Cumulative Tax (RM)
0 - 5,000	0 %	0	0
5,001 - 20,000	1 %	First 5,000: 0 Next 15,000: 150	150
20,001 - 35,000	3 %	First 20,000: 150 Next 15,000: 450	600
35,001 - 50,000	8 %	First 35,000: 600 Next 15,000: 1,200	1,800
50,001 - 70,000	14 %	First 50,000: 1,800 Next 20,000: 2,800	4,600
70,001 - 100,000	21 %	First 70,000: 4,600 Next 30,000: 6,300	10,900
100,001 - 250,000	24 %	First 100,000: 10,900 Next 150,000: 36,000	46,900
250,001 - 400,000	24.5 %	First 250,000: 46,900 Next 150,000: 36,750	83,650
400,001 - 600,000	25 %	First 400,000: 83,650 Next 200,000: 50,000	133,650
600,001 - 1,000,000	26 %	First 600,000: 133,650 Next 400,000: 104,000	237,650
1,000,001 - 2,000,000	28 %	First 1,000,000: 237,650 Next 1,000,000: 280,000	517,650
Exceeding 2,000,000	30 %	First 2,000,000: 517,650 Balance: 30 %	517,650 + 30 % on excess
Source: LHDN/IRBM

Non-resident tax rate

Non-resident individuals are taxed at a flat rate of 30 percent on all taxable Malaysian-sourced income, with no personal reliefs or rebates available.

Special Categories with Different Rates:

Income Type	Rate
Public entertainer	15 %
Interest income	15 %
Royalties	10 %
Technical/management services	10 %
Rental of movable property	10 %

Example 1: Annual Chargeable Income RM50,000

Income Band	Rate	Tax
First RM5,000	0 %	RM0
Next RM15,000 (RM5,001-20,000)	1 %	RM150
Next RM15,000 (RM20,001-35,000)	3 %	RM450
Next RM15,000 (RM35,001-50,000)	8 %	RM1,200
Total Tax Payable		RM1,800
Effective Tax Rate		3.6 %

Example 2: Annual Chargeable Income RM100,000

Income Band	Rate	Tax
First RM70,000	Progressive rates	RM4,600
Next RM30,000 (RM70,001-100,000)	21 %	RM6,300
Total Tax Payable		RM10,900
Effective Tax Rate		10.9 %

Example 3: Annual Chargeable Income RM200,000

Income Band	Rate	Tax
First RM100,000	Progressive rates	RM10,900
Next RM100,000 (RM100,001-200,000)	24 %	RM24,000
Total Tax Payable		RM34,900
Effective Tax Rate		17.45 %

The government has maintained the progressive structure introduced in previous years to balance revenue generation with taxpayer affordability.

Historical Context: The top marginal rate increased from 28 percent to 30 percent for income exceeding RM2 million starting YA 2020, targeting ultra-high-income earners.

What income is taxable in Malaysia?

Malaysian tax law categorizes taxable income under Section 4 of the Income Tax Act 1967 into the following classes:

Category	Examples of Income	Notes / Tax Treatment
Employment income	Salaries, wages, and remuneration Bonuses, commissions, and incentives Allowances (housing, transport, cost-of-living) Benefits-in-kind (company car, accommodation) Leave pays and gratuities Director’s fees Pension payments (if aged below 55)	All considered taxable employment income. Benefits-in-kind and allowances may have specific valuation rules under LHDN guidelines.
Business income	Profits from trade, profession, or vocation Freelance and self-employment income Gig economy earnings (e-hailing, food delivery, online selling) Partnership distributions	Taxable under Section 4(a) of the Income Tax Act. Must maintain business accounts and records for accurate reporting.
Dividends	Single-tier dividends (generally tax-exempt) Dividends exceeding RM100,000 (subject to 2 % tax from YA 2024)	Most dividends are exempt, but large dividend income may attract additional tax under new rules.
Interest income	Interest from savings or fixed deposits Interest on loans provided to third parties	Bank interest is generally tax-exempt, but interest from private lending or non-financial sources may be taxable.
Rental income	Income from renting out property (real estate) Rental of movable assets (equipment, vehicles)	Must be declared as rental income under Section 4(d). Certain deductions (e.g. maintenance, repairs) may be allowed.
Royalties and Premiums	Intellectual property royalties Patent, trademark, and copyright income	Taxable under Section 4(e). Withholding tax may apply for non-resident recipients.
Other Income (Section 4(f))	Pensions and annuities Periodic payments Income from casual employment or services	Covers miscellaneous income not falling under other categories. Taxable unless specifically exempted.

What income is exempted or partially exempt?

Category	Examples of Income	Notes / Conditions
Fully exempt income	Bank interest on savings and fixed deposits Single-tier dividends from Malaysian companies Gratuities received upon retirement or termination Compensation for loss of employment (under specific conditions) Scholarships and study loans Pension payments (if aged 55 and above from Malaysian employment) Insurance proceeds (life insurance, accident insurance)	These types of income are not subject to income tax under Malaysian tax law. No declaration required unless specifically requested by LHDN.
Partially exempt income	Retirement benefits – certain portions exempt based on years of service Overtime payments – limited exemptions for specific employment categories Travel allowances – reasonable amounts for business-related travel	Only part of these incomes is tax-exempt. The balance must be declared and may be taxable depending on LHDN guidelines.

Is foreign income taxable in Malaysia ?

All types of foreign-source income received by resident individuals in Malaysia are exempt from tax until 31 December 2036, provided:

The income has been subjected to tax in the country of origin.
Proper documentation is maintained (tax receipts, proof of foreign taxation).

Exception: Resident individuals carrying on a partnership business in Malaysia are not eligible for this exemption (except for foreign-source dividend income under specific conditions).

How to calculate your income tax in Malaysia (Step-by-Step)

Step 1: Determine your chargeable income

Formula:

Chargeable Income = Gross Income - Allowable Deductions - Tax Reliefs

Gross income includes:

Total employment income (before EPF deductions).
Business income (gross revenue).
Rental income.
Interest and dividends.
Other taxable income.

Allowable deductions:

EPF contributions (capped at RM4,000).
SOCSO/PERKESO contributions (capped at RM350).
Business expenses (for self-employed individuals).

Step 2: Apply tax reliefs and rebates

After calculating gross income minus statutory deductions, subtract personal tax reliefs to arrive at chargeable income.

Major Tax Reliefs
Relief Category	Amount (RM)
Individual and dependent relatives	9,000
Disabled individual (additional)	6,000
Spouse (joint assessment)	4,000
Disabled spouse (additional)	5,000
Children below 18 (each)	2,000
Children 18+ in higher education (each)	8,000
Disabled child (each)	6,000
EPF and life insurance	7,000 (combined)
Private Retirement Scheme/Deferred Annuity	3,000
Education/medical insurance premiums	4,000
Medical expenses (self/spouse/child)	8,000
Medical expenses for parents	8,000
SSPN savings	8,000
Self-education fees	7,000
Lifestyle (books, electronics, internet)	2,500
Sports equipment/activities	1,000
Childcare/kindergarten fees	3,000
EV charging facilities/composting machine	2,500
Source: LHDN

Tax rebates:

Rebate Type	Eligibility	Amount (RM)
Individual rebate	Chargeable income ≤ RM35,000	400
Couple rebate (joint assessment)	Joint chargeable income ≤ RM35,000	800
Zakat/Fitrah rebate	Actual amount paid	Actual amount

Step 3: Use the LHDN income tax calculator 2026

The MyTax portal provides an integrated tax calculator to assist with accurate computation. Access it via:

Website: https://mytax.hasil.gov.my

Navigate to ezHASiL Services > Tax Calculator.
Input your gross income and reliefs.
System automatically computes tax payable.

Malaysia tax reliefs, deductions, and rebates

Individual and family reliefs

Category	Relief type	Amount (RM)	Notes
Self and dependents	Individual relief	9,000	Automatically granted to all taxpayers.
	Disabled individual (additional)	6,000 → 7,000 (effective YA 2025)	Additional relief for registered disabled taxpayers.
	Spouse (joint assessment)	4,000	Applicable when electing for joint assessment with spouse.
	Disabled spouse (additional)	5,000 → 6,000 (effective YA 2025)	Extra relief for supporting a disabled spouse.
Children	Child below 18 years	2,000 per child	Applies to each child under 18 years old.
	Child 18+ in higher education	8,000 per child	For full-time education at diploma level or higher.
	Disabled child	6,000 per child → 8,000 per child (effective YA 2025)	For children registered as disabled.
	Additional relief for disabled child in higher education	8,000	On top of disabled child relief if enrolled in higher education.

Lifestyle, education, and healthcare reliefs

Category	Eligible expenses	Relief Amount (RM)	Notes / Updates
Medical Expenses	Self, spouse, or child — serious diseases, fertility treatment, dental treatment, vaccinations, mental health screening, COVID-19 testing, diagnostic tests Complete medical examination (within the above)	8,000 → 10,000 (effective YA 2025) (Medical exam capped at RM1,000)	Covers a wide range of medical expenses. Medical exam sub-limit applies.
	Children with learning disabilities	Up to 6,000	Capped separately for children with learning disabilities.
	Parents / grandparents (medical, dental, special needs, carer expenses)	8,000	Expanded to include grandparents from YA 2025.
Education	Self-education fees (tertiary/postgraduate) Personal upskilling / self-enhancement courses	7,000 (includes up to RM2,000 for upskilling)	Applies to accredited courses and recognized professional certifications.
Lifestyle	Books, magazines, newspapers Computers, smartphones, tablets Broadband subscription Gym membership	2,500	Claimable for personal lifestyle and digital-related spending.
Sports	Purchase of sports equipment Rental / entry fees for sports facilities Sports competition registration fees Sports training fees	1,000	Expanded to include expenses for parents from YA 2025.
Green Technology	Installation, rental, or hire-purchase of EV charging facilities Purchase of food waste composting machine for household use	2,500	Extended until YA 2027. Applies to eco-friendly home and transport initiatives.

EPF and life insurance contributions

Category	Eligible Contributions / Premiums	Relief Amount (RM)	Notes / Updates
EPF Contributions	Mandatory or voluntary EPF contributions Includes i-Saraan contributions for self-employed individuals	4,000	Applies to both employed and self-employed taxpayers contributing to EPF.
Life Insurance	Life insurance premiums for self and/or spouse	3,000	Combined with EPF relief for a maximum of RM7,000 total.
Private Retirement Scheme (PRS) and Deferred Annuity	Contributions to approved PRS and deferred annuity premiums	3,000	Relief extended to YA 2030 to encourage private retirement savings.
Education and Medical Insurance	Premiums for education or medical insurance (self, spouse, child)	4,000 (increased from RM3,000 for YA 2025)	Covers personal, family, or dependent insurance policies providing education or medical protection.

Parenthood and childcare reliefs

Category	Eligible Expenses / Contributions	Relief Amount (RM)	Notes / Updates
Childcare and Early Education	Nursery or kindergarten fees for children below 6 years old	3,000	Relief extended to YA 2027. Claimable by either parent who incurred the expense.
SSPN Savings	Net savings in Skim Simpanan Pendidikan Nasional (SSPN)	8,000	Relief extended to YA 2027. Can be claimed by either parent contributing to the account.
Breastfeeding Equipment	Purchase of breastfeeding equipment (e.g., breast pumps, storage containers)	1,000	Claimable once every two years and for women taxpayers only.

Tax rebates for individuals and couples

Category	Eligibility / Conditions	Rebate Amount (RM)	Notes / Updates
Individual Rebate	Chargeable income does not exceed RM35,000	400	Automatically applicable if eligible. Reduces tax payable directly (not a deduction).
Couple Rebate	Separately assessed: Each spouse’s chargeable income ≤ RM35,000 → RM400 each Jointly assessed: Combined chargeable income ≤ RM35,000 → RM800 total	400 / 800	Encourages joint filing for lower-income households.
Zakat and Religious Dues	Zakat, Fitrah, or other Islamic religious dues paid Departure levy for Umrah or pilgrimage (up to twice in a lifetime)	Actual amount paid	Full rebate for actual payment made. Deducted directly from tax payable.

Filing deadlines for 2026

Personal Income Tax (YA 2025 - Filing in 2026)

Form Type	Manual Submission	e-Filing Submission
Form BE (Employment income only)	30 April 2026	15 May 2026
Form B (Business income)	30 June 2026	15 July 2026
Form M (Non-residents)	30 April 2026	30 April 2026
Form P (Partnerships)	30 June 2026	15 July 2026

Employer Obligations:

Form	Deadline	Description
EA Form (to employees)	28 February 2026	Annual remuneration statement
Form E (to LHDN)	31 March 2026 (manual) 30 April 2026 (e-Filing)	Employer's annual return
CP58	31 March 2026	Statement for agents/dealers/distributors

FAQs: Individual Income Tax in Malaysia

Is allowance taxable in Malaysia?

It depends on the type of allowance. Malaysian tax law distinguishes between taxable and non-taxable allowances based on their nature and purpose.

Taxable allowances (must be declared):

Housing allowance.
Cost-of-living allowance (COLA).
Entertainment allowance.
Overseas allowance.
Car maintenance allowance (if provided in addition to company car).
Fixed meal allowances

Non-taxable allowances (exempt):

Petrol allowance (if reimbursed based on actual usage).
Parking allowance (reasonable amounts).
Travel allowance for official duties (with supporting documents).
Meal allowance (if provided during overtime or business travel).
Child education allowance (subject to conditions).

If the allowance is a fixed monthly payment regardless of actual expenses, it's generally taxable. If it's a reimbursement of actual expenses with receipts, it's typically non-taxable.

What happens if I miss the tax filing deadline?

Administrative penalties:

First offense: Potential fine up to RM 200 to RM 2,000
Subsequent offenses: Fine up to RM 2,000 to RM 20,000 or imprisonment up to 6 months, or both
Under Section 112(1) of Income Tax Act 1967

Tax penalties:

Late payment of tax: 10 percent penalty on unpaid tax amount.
Continued non-compliance: Additional penalties up to 45 percent of unpaid tax.

What to do if you miss the deadline:

File immediately – Even late filing is better than no filing.
Pay outstanding tax – Minimize penalty accumulation.
Submit penalty waiver appeal (if applicable):

Write to LHDN explaining circumstances.
Provide supporting documents (medical certificates, force majeure evidence).
Submit via MyTax portal or LHDN office.

First-time late filers with good compliance history may receive reduced penalties or warnings instead of full fines.

Can I get a tax refund in Malaysia?

Yes, you can get a tax refund if you've overpaid taxes throughout the year. Common scenarios include:

When refunds occur:

Monthly Tax Deduction (MTD/PCB) by employer exceeds actual tax liability.
You claimed tax reliefs not accounted for in MTD schedule.
You made installment payments (CP500) exceeding final tax calculation.
Your employer over-deducted based on conservative estimates.

Refunds are not automatic – you must file your tax return to trigger the refund process, even if you believe your employer deducted the correct amount.

What's the difference between payroll tax and income tax?

There is often confusion between these two concepts. Here's the clarification:

Category	Description	Key Points
Monthly Tax Deduction (MTD) / Potongan Cukai Bulanan (PCB)	Not a separate tax, but an advance payment of your annual income tax.	Employer deducts a portion of your monthly salary based on the MTD schedule. The amount is remitted monthly to LHDN on your behalf. Acts as a prepayment toward your final tax liability.
Annual Income Tax	The actual tax liability calculated when you file your annual tax return.	Based on total annual income minus reliefs and deductions. Can be more or less than total MTD deducted during the year. If MTD exceeds actual tax → you get a refund. If MTD is less than actual tax → you pay the balance.
Key Difference	MTD/PCB = Monthly withholding (estimated) Annual Income Tax = Annual final calculation (actual)	MTD serves as a prepaid estimate, while the annual tax return determines your true payable tax for the year.

"Payroll tax" in the traditional sense (employer-paid tax on payrolls) does not exist in Malaysia. Employers pay EPF (12-13 %) and SOCSO contributions, but these are social security contributions, not taxes.

Your employer deducts MTD monthly (pay-as-you-earn), and you file annual income tax to reconcile the final amount due or refundable.