Your Stress-Free Guide on How to Pay Income Tax in Malaysia

Navigating the Malaysian income tax system might seem like a big challenge, but fear not! This article is your friendly guide on how to pay income tax in Malaysia, as well as filing income tax when tax season arrives. From understanding the process to unlocking tax reliefs, we'll walk you through the steps, making paying income tax a breeze.

Understanding the tax filing system in Malaysia

Tax calendar

In Malaysia, the tax season kicks off in March and concludes by 30 April 2024 for salaried individual (without business income) for immediate preceding calendar year. However, this has been extended to 15 May 2024 by the Inland Revenue Board of Malaysia (LHDN) for e-Filing of personal tax returns.

For individuals with business income, the tax return must be submitted not later than 30 June 2024. It is crucial to be aware of these dates to ensure you pay your income tax on time and avoid penalties. Some of the penalties can include late filing penalties, late payment charges and compounding penalties, to name a few. 

Tax forms 

Familiarise yourself with the different tax forms issued by LHDN, such as Form BE for employment income, Form B for business income, and Form M for non-residents.

Eligibility

Income

Currently, a tax resident individual with annual chargeable income of RM10,000 and above for a calendar year would be subject to income tax and must register for income tax file with LHDN.

Annual chargeable income includes all types of income such as gross employment income, dividends, interest, discounts, rental, royalties, premiums, pensions, annuities or other periodic payments and others.

Any source of income derived from outside Malaysia and received in Malaysia by a tax-resident individual is tax exempted, provided that the foreign income has been subjected to tax in the country of origin effective from 1 January 2022 to 31 December 2026.

Residency status

The income tax rate applicable to an individual depends on their residency status. A tax resident individual in Malaysia is taxed in accordance with the scaled rates at different level of chargeable income band and eligible for tax reliefs. A non-tax resident individual is subject to tax at the flat rate of 30% and not eligible for personal tax reliefs.

The residence status of an individual is determined by the number of days an individual person is present in Malaysia during a particular calendar year. An individual is considered as non-tax resident if total physical presence in Malaysia less than 182 days in a calendar year.

As such, taxpayers should keep proper record of travel documents or passports to confirm the days in and out of Malaysia for verification of resident status by LHDN, if required.

Note: Income tax rates are subject to change, and you are encouraged to check the latest individual tax rates as provided in the LHDN website to ensure accurate and up-to-date information.

Monthly Tax Deduction (MTD)

Also known as Potongan Cukai Bulanan (PCB), MTD is a mechanism that allows employers to deduct a monthly tax deduction from employees’ remuneration, based on either the Schedule of MTD or other approved rules by the Director General.

MTD is intended to reduce the burden of employees to pay lump sum taxes when tax season arrives annually.

MTD as final tax

Effective from assessment year 2014, taxpayers who have employment income and make MTD are given an option not to fill up the Income Tax Return Form (ITRF), provided that they fulfill certain criteria. Taxpayers who meet this criteria and do not file ITRF by the due date is deemed to have elected MTD as final tax. This means that the MTD deducted will be deemed to be the final tax. It’s important to note that if you do opt for MTD as final tax but wish to claim additional tax reliefs, you are required to submit your ITRF. Penalties may be imposed if the ITRF is submitted after the stipulated deadline. LHDN has the power to raise an assessment or additional assessment upon receiving your ITRF.   

If you decide not to choose MTD as final tax, you must submit the ITRF before the tax filing due date.

Step-by-step guide on how to pay income tax in Malaysia

Registration

Registering with LHDN marks the initial step toward fulfilling your tax obligations. It is a pivotal process that establishes your presence in the taxation system.

Before delving into income tax payments, ensure that you are officially registered and possess a Taxpayer Identification Number (TIN). TIN is a tax identification number as per records maintained with LHDN. The enforcement of TIN has commenced since 1 January 2022. An income tax number provided to a taxpayer on or prior to 1 January 2022 is classified as the TIN for that individual.

For those venturing into the tax realm for the first time, the registration can be initiated via e-Daftar through LHDN's online platform called MyTax (https://mytax.hasil.gov.my).

The registration involves providing key personal information, contact details, and, where applicable, details about your employment or business. The TIN obtained during this process serves as your unique identifier in all tax-related matters.

Gathering documents

Effective tax filing begins with meticulous document collection. Central to this process is the acquisition of your EA form, also known as the Statement of Remuneration. This form, provided by your employer, outlines details of your income, deductions, and taxes withheld.

Additionally, gather all relevant receipts and financial statements that provide a comprehensive overview of your income sources. Thorough documentation is not only a legal requirement but also the foundation for accurate reporting. This process ensures that you have a complete record of your financial activities, making it easier to claim eligible deductions and reliefs during the filing process.

Taxpayers are required to keep documents and records for 7 years for LHDN to review.

Online filing

The advent of technology has transformed the tax-filing landscape, and Malaysia is no exception. Embrace the convenience of online filing through the electronic filing system (e-Filing) provided by LHDN. After registering and obtaining your TIN, log in to the e-Filing system using your credentials.

The platform is designed to be user-friendly, guiding you through the filing process step by step.

As you navigate the online forms, you'll input information from your gathered documents. The system often includes helpful features, such as built-in calculators, to assist you in ensuring accuracy. This digital approach not only simplifies the filing process but also reduces the margin for errors that can occur with traditional paper-based methods.

Starting from 1 January 2024, LHDN has mandated the use of electronic services (e-services) for services provided online (i.e. e-Daftar, e-Kemaskini, e-Filing).

Verification and submission

Before finalising your tax return, take the time to thoroughly review the information you've entered. The e-Filing system typically allows you to preview your return before submission, offering an opportunity to catch any errors or omissions. Pay close attention to details such as income figures, deductions, and personal information to ensure accuracy and completeness.

Once you are confident that all details are correct, proceed with the submission through the e-Filing system. A confirmation receipt is generated upon successful submission, serving as proof that you have fulfilled your tax-filing obligations. This receipt is an essential document that should be retained for your records.

Payment

If, after filing your ITRF which is deemed an assessment, you find that you still owe some taxes, even after taking into account your MTD deduction, the final step involves payment.

LHDN provides multiple convenient payment methods to cater to different preferences. Online banking via FPX is a popular choice, allowing you to transfer the owed amount directly from your bank account to LHDN.

Taxpayers are required to use TIN or a bill number when making tax payment via FPX. This bill number was introduced by LHDN since 1 January 2023 and is a 16-digit number which serves as a mandatory reference for payment of direct taxes, except MTD and stamp duty payment. 

You can search for the bill number through ‘e-Billing’ system under MyTax > ezHasil services before making payment. During the transition period, taxpayers are still allowed to use TIN as payment reference until further notice. 

For taxpayers who wish to pay tax through electronic telegraphic transfer service (e-TT), they will be required to use the VA number generated by the system as their payment account number when making the payment through e-TT.

In essence, the registration and tax-filing process in Malaysia is a structured journey that combines digital efficiency with traditional elements, ensuring that taxpayers can fulfil their obligations accurately and conveniently.

Individual tax reliefs and deductions

(Only applicable for tax resident individuals)

Personal reliefs

Optimise your savings by taking advantage of personal reliefs, such as individual and dependent reliefs. For instance:

• Individual Relief: Claim up to RM9,000 as an individual taxpayer.
• Dependent Relief: Receive additional relief for each qualified child or dependent.

Education and medical expenses

Claim reliefs for education fees and medical expenses incurred for yourself, your spouse, or your children. Examples include:

• Education Fees: Self education fees (includes course of study undertaken for the purpose of upskilling or self-enhancement) up to RM7,000.
• Medical Expenses: Medical expenses for serious diseases, vaccination expenses for self, spouse or child up to RM10,000.
• Medical treatment, special needs and caregiver for parents (medical condition certified by medical practitioner) restricted to RM8,000.

Tax incentives

Explore available tax incentives for specific activities, such as:

• Investment Incentives: Deduction for investing in approved venture companies to promote entrepreneurship and innovation, which is applicable to individuals with business income only and subject to certain conditions.
• Employee Provident Fund (EPF) Contributions: Tax relief up to a maximum of RM7,000 (RM3,000 for life insurance premium or additional voluntary EPF contribution and RM4,000 for mandatory contributions to approved schemes or voluntary EPF contribution).

Property and home loans

Property owners who leas out their property can benefit from claiming a tax deduction on mortgage interest payments and maintenance costs against rental income derived from the property.

Common mistakes to avoid

Late filing

Those who fail to furnish the ITRF, without reasonable excuse, will be subject to a fine of RM200 to RM20,000 or imprisonment for a term not exceeding 6 months or both.

Late payment

Stay on top of deadlines to avoid penalties. Late payment can lead to fines on any outstanding tax amounts. If you fail to make the full payment after the due date, which is 30 April 2024 or the extended deadline of 15 May 2024, you will be charged a penalty of 10% on your balance of unpaid tax.

Here's an example to help you understand better.

• Balance of unpaid taxes after 30 April 2024 or the extended deadline of 15 May 2024: RM1,000
• First penalty (10%): RM100
• Total payable: RM1,100

Inaccurate information

Accuracy is key! Double-check all details to avoid errors, as incorrect information may result in a fine of RM1,000 to RM10,000 and 200% of tax undercharged.

In conclusion, filing of the ITRF and paying income tax in Malaysia is a responsibility of an individual taxpayer. Follow this comprehensive guide on how to pay income tax in Malaysia, and you'll be well-prepared to navigate the income tax landscape, ensuring compliance with Malaysian tax regulations, and optimising your tax payments.

💡 The information provided above is purely for educational purposes and is not intended to provide, and should not be relied on for tax advice. You should consult your own tax professional or refer to the latest guidelines from the LHDN for accurate information tailored for your situation.