Individual Income Tax Malaysia 2025: Relief & Formula Guide

Income tax is a mandatory contribution levied on individuals and businesses based on earnings.

Income derived In Malaysia by residents and non-residents are subject to income tax administered by the Inland Revenue Board of Malaysia (IRBM a.k.a LHDN). Earning income including:

• Salaries and wages
• Business income
• Rental income
• Dividends and interest
• Royalties, premiums, and pensions

The legal framework is provided under the Income Tax Act 1967. All taxable persons are required to register, declare, and pay tax annually.

“You are considered a tax resident if you stay in Malaysia for 182 days or more in the basis year for that YA.” — LHDN

The Core Concepts: Exemption vs. Deduction

Tax Exemptions (Reliefs & Allowances)

These are amounts that can be subtracted from total income to reduce taxable income. They are primarily for individuals and are tied to specific expenses or circumstances 

Examples: Medical costs and lifestyle spending

Tax Deductions

These are expenses incurred by a business or a self-employed individual for the purpose of generating income. They are subtracted from the business’s gross revenue to determine its taxable profit.

How Is Individual Income Tax Calculated in Malaysia?

Malaysia follows a progressive tax system, meaning different portions of income are taxed at different rates, depending on which tier they fall onto. 

This ensures individuals with higher incomes contribute a reasonably larger proportion of tax compared to those earning less.

The tax calculation steps are:

1. Determine the Total Annual Income 

Calculate total earnings from all sources for the Year of Assessment (YA). Which can be:

• Employment income (basic salary, bonuses, commissions, allowances, overtime pay, and benefits-in-kind.)
• Rental income
• Business income
• Other Income (dividends, royalties, pension and annuities, freelance earnings, honorariums and other gains or profits.)

If you work full-time and also run an online business, all taxable incomes are added together to form the aggregate income.

Formula: Aggregate income = All of the taxable income

2. Deduct Donations and Gifts

Donations made to approved Institutions can deduct up to a limit of 10% of your aggregate Income.

Formula: Aggregate Income – Approved Donations, will get Total Income.

3. Deduction on tax exemptions

Certain types of income are non-taxable. These exemptions reduce total income before further calculations for chargeable income.

Specific Allowance Exemptions (with conditions):

1. Scholarships

Scholarships are generally fully tax-exempt. This exemption applies to any scholarship, study loan, or grant received by an individual, as long as it is for the purpose of their education, regardless of whether they are studying full-time or part-time. The scholarship provider can be a government body, a company, or a private institution.

2. Retirement Gratuities

A gratuity received upon retirement is tax-exempt if it meets one of the following conditions:

• The retirement is at or after the age of 55, and you have worked with the same employer for 10 consecutive years.
• The retirement is due to ill health, regardless of age or length of service.
• The retirement is on or after the age of 50, but before the age of 55, and you have retired under a compulsory retirement law (such as for the Armed Forces).

If these conditions are not met, the gratuity received will be subject to income tax.

3. Certain Allowances

A number of allowances provided by the employer are tax-exempt, up to a certain limit. The most common ones are:

• Travel Allowance: RM6,000 per year is exempt, covering allowances for toll payments and petrol. (Parking allowance/fees is fully exempt with no cap)
• Child Care Allowance: RM3,000 per year is exempt for children who are 6 years old and below during the assessment year. From YA 2025, this exemption is expanded to include elderly care (parents/grandparents).
• Entertainment allowance: Taxable. However, may claim a deduction for actual entertainment expenses incurred in performing official duties, restricted to the amount of entertainment allowance included as income.

Tax Relief

This is the most crucial step where you apply all the tax reliefs you are entitled to. Common relief For Individuals in Malaysia (YA 2024/2025) include:

• Personal Relief: A standard, automatic deduction up to RM9,000 for every taxpayer.
• Education: Relief of direct cost for acquiring new knowledge and skills for self up to RM7,000 per year.
• Spouse Relief: Claim this relief up to RM4,000 if the spouse does not have any source of income or if taxpayer option for joint assessment under own name. (Expenses of alimony to former wife include in this section too)
• Child Relief: RM2,000 per unmarried child under 18; RM2,000 or RM8,000 for children over 18 pursuing higher education in college, university, vocational, or on board. A relief of RM6,000 per disabled child, additional RM8,000 can be claimed if the disabled child is in higher education.
• Lifestyle Relief: Up to RM2,500 (books, computers/smartphones/tablets, internet, and Additional Sports Relief up to RM1,000 for sports equipment, facility entry/rental, competition registration, gym membership, and approved training; from YA 2025, scope expands to parents.
• Medical & Health Expenses: Relief up to RM10,000 for serious diseases, fertility treatment, etc. Within this, a sub-limit of RM1,000 to full medical check-ups, vaccination, mental health consultation, diagnostic fees, and self-testing medical devices.
• Education & Medical Insurance Premiums: Premiums paid for an education insurance policy or a medical insurance policy for self, spouse or child up to RM4,000 per year.
• EPF & Life Insurance: A combined relief up to RM7,000 for contributions to Employees Provident Fund (EPF) and life insurance premiums (EPF RM4,000 + Life Ins. RM3,000)
• SOCSO/EIS Contribution: Up to RM350 per year.

Formula: Total Income – All Tax Reliefs, get Chargeable Income (CI)

4. Apply the Progressive Tax Rate

Once calculated the CI from previous step, can apply the progressive tax rate as below published by the Inland Revenue Board (LHDN).

Note: Non-residents are taxed at a flat rate of 30% in 2025.

Example calculation: If The CI is RM30,000, tax for first RM20,000 is RM150 and next RM10,000 will multiply with rate 3%. Total tax payable equal to RM450 (RM150+RM300).

5. Deduct tax rebates (if any)

After calculating the tax payable based on the progressive rates, may proceed to deduct rebates to get your final tax amount.

• Tax Rebates: The most common rebate is RM400 if your chargeable income does not exceed RM35,000.
• Zakat: Any official payments to Zakat institutions are also a direct tax rebate.

Formula: Tax payable – Tax Rebate = Final tax amount.

How Can You File Income Tax in Malaysia?

Filing income tax is a systematic process that has been simplified with the introduction of the LHDN MyTax portal and mandatory e-Filing for all taxpayers.

Use LHDN’s ezHASiL portal to file the return between 1 March and 30 April (for individuals with employment income only), the due date will automatically extend until 15th May if using e-Filing. 

Fact: LHDN has moved to e-Filing only from YA 2024 onward.

Step 1: Prepare Necessary Documents

Before beginning to submit, gather all the relevant documents for the Year of Assessment. If filing In 2025, 2024 will be the Year of Assessment.

• EA Form: This form is provided by employer by the end of February each year and contains a summary of employee’s total annual income, monthly tax deductions (PCB/MTD), and EPF contributions.
• Proof of Income: Documents for any other income received, such as business profits, rental income, or royalties.
• Receipts & Invoices: Keep all receipts for items that tend to be claimed as tax reliefs, such as lifestyle purchases, medical expenses, and donations. LHDN requires taxpayers to retain these for at least seven years.
• Statements: EPF statement and SOCSO contribution statements.

Step 2: Register for a Tax Identification Number (TIN) & e-Filing

For first-time filer, need to register with LHDN to get a Tax Identification Number (TIN) and a one-time PIN for e-Filing.

• Registration: Visit the LHDN MyTax portal and use the “e-Daftar” service and upload a copy of MyKad (IC)  to register. 
• First-Time Login: After receiving TIN, get a one-time PIN online or from any LHDN branch. Use the PIN to log in on the MyTax portal, set up a new password, and activate digital certificate for future logins.

Step 3: Access MyTax Portal and Select Form

After registration, log in to MyTax account using TIN/IC and password. Go to ‘MyTax portal’ and choose the correct tax return form based on self income sources:

• Form BE: For resident individuals with only employment income and no business income
• Form B: For resident individuals with business income.
• Form M: For non-resident individuals.

Step 4: Fill in Annual Income and Personal Details

The e-Filing system will guide through a series of sections to fill in required information.

• Personal Information: Review and update self personal details, including address, marital status, and bank account information for tax refunds.
• Income Declaration: Declare total income based on your EA form and any other income you have. The total Monthly Tax Deduction (MTD/PCB) amount from the employer will often be pre-filled.
• Claim Tax Reliefs & Rebates: Enter the amounts for all the tax reliefs eligible for, such EPF, lifestyle, medical expenses, and donations.

Step 5: Review, Declare, and Submit

The final steps involve reviewing submission and electronically signing the form.

• Review: The system will automatically calculate chargeable income and tax payable based on the information entered. The summary page will show total tax and any refund or balance due.
• Declare: Declare that all information provided is true and correct.
• Submit: Enter MyKad number and password to digitally sign and submit for tax return, will receive a confirmation receipt instantly.

Our Recommendation:  Save or print out the confirmation receipt for own records.

Step 6: Make Tax Payment (If Applicable)

If having a balance of tax to pay, remember to make payment before due dates to avoid any penalties.

• Payment Methods: Payments can be made online through FPX, credit/debit cards, or through bank counter services. PCB deductions throughout the year will deduct from final tax payable and any excess payment will be refunded.

Note: Penalty for late payment is 10% of the tax payable, will increase 5% accordingly if the non-compliance persists after 60days. 

Conclusion: Understand It Now, Avoid Stress Later

Income tax in Malaysia isn’t as intimidating as it seems once you break down the steps, formula, and reliefs. Whether you’re salaried, freelancing, or running a business, staying compliant with LHDN starts with understanding how tax is calculated and what you can claim.

Early preparation = fewer surprises when April rolls around.

If you’re also looking to boost your brand visibility alongside managing compliance, consider working with a trusted PR Agency Malaysia like us. We help businesses gain the media exposure and digital presence they need to grow with confidence.

Disclaimer: This information is based on current tax laws and guidelines from the Inland Revenue Board of Malaysia (LHDN). These figures and regulations can change, so it’s always best to consult the official LHDN website or a qualified tax professional for the most up-to-date information.