Employment Income Guidelines in Malaysia: Understanding the Types of Employment Income under the Income Tax Act 1967

Employment Income Guidelines in Malaysia: Understanding the Types of Income Taxable under the Income Tax Act 1967

In accordance to s4(b) of Income Tax Act 1967, there are several gains and profits from an employment, which includes salaries, wages, bonuses, commissions, and other monetary benefits. However, it’s not just limited to monetary remuneration – benefits in kind, living accommodations provided by employers, and compensations for loss of employment are also taxable under this section. Understanding the types of taxable employment income is crucial for employees and employers alike to ensure compliance with the law.

1. What are the different types of employment income according to the Income Tax Act 1967 in Malaysia?
   Under the Income Tax Act 1967, there are different types of employment income that are subject to tax. These are:

• Section 13(1)(a): Salaries and Wages (Monetary Remuneration)
  This includes any monetary compensation received by an employee for exercising their employment, such as wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance. For details for information, you may refer to the Public Rulings below:Public Ruling No. 5/2019 – Perquisites From Employment

  Public Ruling No. 11/2016 – Tax Borne By Employers

  Public Ruling No. 9/2016 – Gratuity

  Public Ruling No. 11/2012 – Employee Share Scheme Benefit

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• Section 13(1)(b) :Benefits in kind (BIK)
  These are non-monetary benefits or amenities provided by or on behalf of an employer that cannot be converted into money. They are for the personal enjoyment of the employee and their immediate family. For Example: Motor Vehicle, Utility bills in employer’s name, Medical Expenses, Dental Treatments, Free Services, and Local and Overseas Leave Passage, etc.

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• Section 13(1)(c): Value of Living Accommodation (VOLA)
  The use or enjoyment by an employee of living accommodation provided for them by their employer in Malaysia, including living accommodation in premises occupied by the employer. It is either rent-free or provided at a reduced rate.
  The Guideline for Computation of the Value of Living Accommodation Provided for the Employee by the Employer and Public Ruling No. 3/2005 provide information on living accommodation benefit.
  *If the furniture is provided together with accommodation, the value of furniture should be excluded as it is taxed under
  section 13(1)(b).
  **Time apportionment : If the accommodation is provided in the mid of the year (less than 12 months), the amount should be time apportioned (based on the period for which accommodation be provided not the actual period of occupation).

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• Section 13(1)(d): Amount from unapproved pension or provident fund
  Any amount received by an employee from an unapproved pension or provident fund, scheme, or society (employer’s portion only). It includes any contributions made by the employer to the fund, scheme, or society or its trustees. However, it does not include pensions, annuities, or periodical payments under Section 4(e).

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• Section 13(1)(e): Compensation for loss of employment
  Any compensation received by an employee for the loss of their employment, whether received before or after their employment ceases. This compensation includes amounts in respect of a covenant entered into by the employee restricting their right to engage in similar employment after leaving their previous job or any agreement or arrangement having a similar effect.

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