Introduction
Understanding salaries and wages Malaysia income tax is essential for both employers and employees to determine what forms of remuneration are taxable under the Income Tax Act 1967.
Under Section 13(1)(a), any payment — whether in money or otherwise — made to an employee in respect of having or exercising employment is taxable unless specifically exempted.
1. Taxable Employment Income under Section 13(1)(a)
Taxable income includes:
- Wages, salaries, bonuses, commissions, gratuities, allowances
- Leave pay, fees, perquisites, or other payments related to employment
💡 Note: Gifts not related to employment duties (e.g., wedding gifts) are not taxable.
2. Gratuity [Public Ruling 9/2016]
When an employee ceases employment due to resignation or retirement, a lump sum gratuity may be paid. It is taxable in the year it is received, unless exempted under Schedule 6, Paragraph 25.
Full Exemption
Gratuity is fully exempt if payment is due to:
- Retirement from ill health
- Compulsory retirement after ≥10 years with the same employer (age ≥55)
- Retirement at age ≥50 stated in contract with ≥10 years service
- Death gratuity (paid to next-of-kin)
Partial Exemption
If service <10 years, exemption is RM1,000 for each completed year of service.
Example:
Employment: 1 May 2014 – 25 March 2020
Completed years: 5 → Partial exemption = RM5,000 (RM1,000 × 5 years)
3. Perquisites [Public Ruling 5/2019]
Perquisites are benefits in cash or kind that have monetary value and are convertible into money.
They are taxable when received in respect of employment, either from the employer or a third party.
Not Taxable
Pure gifts or personal testimonials:
- Wedding or birthday gifts
- Cash awards for passing exams
- Certificates or gifts for extraordinary achievements
Common Taxable Perquisites
- Allowances: travelling, parking, meals, entertainment
- Reimbursement of private expenses
- Employer-paid income tax (Tax on Tax effect)
- Credit card facilities, utilities in employer’s name
- Subsidized loan interest (if external funds used)
- Insurance premiums (if employee/family is beneficiary)
- Personal computers or broadband subscriptions (exempted)
- Club membership fees (if individual-owned)
- Tuition for children (taxable), or skill-related courses (exempt)
- Professional subscriptions (taxable if unrelated to employer’s business)
4. Tax Borne by Employer [Public Ruling 11/2016]
If the employer pays the employee’s income tax, it is treated as a taxable perquisite, resulting in a tax-on-tax effect.
Example (YA 2020):
| Item | Amount (RM) |
| Chargeable income | 100,000 |
| Tax borne by employer | 13,516 |
| Total taxable income | 113,516 |
5. Loan Interest Benefits
| Source of Funds | Tax Treatment |
| Internal company fund | Not taxable |
| External fund (bank loan) | Net interest borne by employer is taxable |
6. Tax-Exempt Perquisites (EA Form Part F)
| Allowance Type | Description | Max Value (RM) |
| Petrol & Travelling | Official duties or commute (if identifiable) | 6,000 |
| Parking | Allowance or actual expenses (reasonable) | – |
| Meal | Regular, reasonable meal allowance | – |
| Childcare | For children ≤12 years old | 3,000 (YA 2024) |
| Phone / Devices | 1 phone, tablet, PDA, or computer | 1 unit each |
| Phone Bills | Monthly broadband or phone subscription | 1 line each |
| Service/Innovation Award | Excellence or long service (>10 years) | 2,000 |
| Loan Interest Subsidy | For housing, education, or car loan ≤RM300,000 | – |
| Device Purchase | Smartphone, tablet, or PC | 5,000 |
⚠️ Not applicable to employees who have control over their employer (e.g., directors, partners, or owners).
7. Irrelevant Factors in Determining Taxability
The following do not affect whether an income is taxable:
- Location of employer
- Place of payment or receipt
- Source of funds
- Residence status of employee
Only the nature and connection to employment determine taxability.
Key Takeaways
- All employment-related payments are taxable unless exempted
- Gratuity and perquisites follow Public Ruling 9/2016 & 5/2019
- Employer-paid tax forms part of taxable income (tax-on-tax)
- Specific allowances and benefits qualify for exemptions under Schedule 6
- Keep documentation and breakdowns to support exemption claims
ANC Group – Your Personal Tax Advisor
Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.
Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.
ANC Group keep you abreast with Malaysia tax updates and any changes in the local regulations.
We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.
If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
