Tax Deductions and Rebates in Malaysia: A Simple Guide for Employers

Every year, taxpayers in Malaysia look for ways to reduce their income tax.

Many people don’t realize that they can save a significant amount through tax deductions and rebates.

These benefits help lower the amount of taxable income and the final tax you need to pay.

If you're an employer, knowing about these tax benefits can help you guide your employees in making the most of their earnings.

This guide will break down what tax deductions and rebates are, how they work, and how you can use them to reduce your tax burden.

What Are Tax Deductions?

Tax deductions help reduce your taxable income, which means you’ll be taxed on a lower amount.

For example, if your annual income is RM60,000 but you qualify for RM10,000 in deductions, your taxable income is now RM50,000.

This reduces the amount of tax you owe.

There are different types of tax deductions in Malaysia, and they vary depending on your expenses, contributions, and financial situation.

Those types are EPF contributions, insurance premiums, medical expenses, donations to charitable organizations, education fees, and others.

Types of Tax Deductions in Malaysia for Employees

As mentioned before, there are various types of tax deductions that you need to know as Malaysian. Below are the explanations.

EPF Contributions

Every month, employees in Malaysia contribute a portion of their salary to the Employees Provident Fund (EPF) for retirement savings.

The good news is that these contributions are tax-deductible. Both employee and employer EPF contributions can be deducted, with a maximum limit of RM4,000 per year.

Insurance Premiums

You can also claim tax deductions if you pay for certain insurance plans. These include:

Life insurance for yourself or your spouse (deductible up to RM3,000).
Health and education insurance (deductible up to RM3,000).

Medical Expenses

You can claim deductions for medical expenses incurred for yourself, your spouse, or your parents. Eligible expenses include the following:

Medical treatment for serious diseases like cancer, heart disease, and kidney failure (up to RM8,000).
Full medical check-ups, including COVID-19 tests and mental health screenings (up to RM1,000).
Parental medical expenses, including nursing home care and treatments for elderly parents (up to RM8,000).

Donations to Charitable Organizations

If you donate to LHDN-approved (Inland Revenue Board of Malaysia) charities, you may claim a tax deduction on the donation amount. Eligible donations include:

Monetary donations
Donations to welfare, healthcare, or religious bodies
Gifts in kind (e.g., books, medical equipment)
Donations for disaster relief
Sponsorships for public-benefit projects (e.g., arts, culture, heritage)

Tax deductions for donations are capped at 10% of annual income.

Education Fees

You can claim up to RM7,000 in tax deductions for higher education fees in specific fields like law, finance, accounting, science, and technology.

There’s also an additional RM2,000 deduction for skill development programs approved by the government.

Others

There are also other deductible expenses that you can claim, both for personal loans and business expenses.

Alimony payments to an ex-wife can be deducted (up to RM4,000).
Breastfeeding equipment purchases qualify for an RM1,000 deduction every two years.
Lifestyle purchases such as books, newspapers, internet subscriptions, fitness equipment, and sports gear qualify for a deduction of up to RM2,500.

What Are Tax Rebates?

While tax deductions lower your taxable income, tax rebates directly reduce the tax amount you need to pay.

This means that after calculating your tax amount, you can subtract rebates to lower your final tax bill.

For example, if your calculated tax is RM1,500 and you qualify for an RM400 rebate, you only need to pay RM1,100.

Types of Tax Rebates in Malaysia

Tax rebates help reduce the actual tax you need to pay, making them an essential benefit for eligible taxpayers.

Unlike tax deductions, which lower taxable income, rebates directly cut the amount of tax owed.

Take a look at the different types of tax rebates available in Malaysia below.

Individual Rebate

This is a standard rebate for all taxpayers. If your taxable income does not exceed RM35,000 per year, you are eligible for a RM400 rebate.

If you and your spouse are jointly assessed, an additional RM400 rebate can be claimed.

Rebate for Parents

If you provide financial support to your parents, you may qualify for a tax rebate of RM8,000 under certain conditions.

The rebate is only available if your parents live in Malaysia and require medical treatment or home care.

Rebate for Disabled Persons (OKU)

Persons with disabilities (OKU) are entitled to an RM6,000 tax rebate. If a taxpayer supports a disabled spouse or child, additional rebates apply:

Disabled spouse: RM5,000 rebate
Disabled child: RM6,000 rebate

Tax Rebate for Senior Citizens

If a taxpayer is 60 years or older, they may qualify for additional rebates, depending on their income level.

Rebate for Childcare and Dependent Care

Do you have young children or dependents? You may qualify for tax rebates related to childcare expenses or dependent medical care.

How to Claim Tax Deductions and Rebates

To claim tax deductions and rebates successfully, you need to properly report them when submitting your tax return to the LHDN (Inland Revenue Board of Malaysia).

Follow these steps to claim tax deductions and rebates effectively and report them in Form BE (individual tax return).

1. Keep All Supporting Documents

Before filing your taxes, gather and keep all necessary documents as proof of your claims. These may include:

Receipts and invoices for medical expenses, education fees, donations, and other deductible expenses.
Insurance premium statements for life, medical, and education insurance.
EPF contribution statements showing your contributions.
Proof of donations made to registered charities.
Proof of payments for zakat (for rebate claims).

LHDN may request these documents for verification, so it’s important to keep them for at least 7 years in case of future audits.

2. Submit Your Tax Return on Time

Filling your tax return late can result in penalties and loss of rebates. Make sure you submit your tax return on time:

April 30, 2025 – Deadline for manual submission (paper filing).
May 15, 2025 – Deadline for e-Filing (online submission).

To avoid last-minute errors, it’s best to file your taxes early and double-check all the details before submission.

3. Declare Your Deductions and Rebates Accurately

List all your deductions and rebates correctly to reduce your taxable income and final tax amount.

Deductions reduce your taxable income. For example, if your income is RM60,000 and you qualify for RM10,000 in deductions, your taxable income is now RM50,000, which lowers the amount of tax you need to pay.
Rebates directly reduce the tax amount you owe. If your total tax payable is RM2,000 and you qualify for an RM400 rebate, your final tax payable becomes RM1,600.

Refer to the latest tax deduction and rebate list from LHDN before making your claims.

How to Report Deductions and Rebates in Form BE (Individual Tax Return)

Form BE is the official tax form for Malaysian taxpayers who earn income from employment and need to claim tax deductions and rebates. Here’s how to report them correctly:

1. Access Form BE via e-Filing

Log in to MyTax Portal (https://mytax.hasil.gov.my/) using your credentials. Select e-Filing > e-BE (for individuals with non-business income).

2. Enter Your Income Details

Fill in your total annual income based on your EA Form provided by your employer.

3. Enter Tax Deductions Under ‘Tax Reliefs’ Section

Navigate to the Tax Reliefs section and enter your deductions under the correct categories, such as:

EPF Contributions (up to RM4,000)
Insurance Premiums (Life, Medical, Education)
Medical Expenses for self, spouse, parents, or dependents
Education Fees (up to RM7,000)
Lifestyle Deductions (Books, Internet, Gym, etc.)

4. Claim Tax Rebates in the ‘Tax Rebate’ Section

Locate the ‘Rebate’ section and enter applicable rebates, such as:

RM400 Individual Rebate (for taxable income below RM35,000).
Parental Care Rebate (up to RM8,000) if supporting elderly parents.
Rebate for Disabled Persons (RM6,000) if you or a dependent have disabilities.
Zakat Rebate (Enter the total zakat amount paid).

5. Submit and Save a Copy of Your Tax Return

Review all information before submission. Then, click ‘Submit’ and download a copy of your tax receipt for reference.

Common Mistakes to Avoid When Claiming Deductions and Rebates

Filing taxes can be confusing, and many people make errors that cause them to lose tax benefits or even get penalized. Here are some mistakes to avoid:

Forgetting to Claim Eligible Deductions

Every year, LHDN updates the list of allowable tax deductions.

Many taxpayers miss out on these deductions simply because they are not aware they exist.

The best way to avoid missing eligible deductions is to check the latest tax relief list from LHDN before submitting your tax return.

Not Keeping Receipts and Proof of Payments

When claiming deductions, having proof is important.

LHDN may conduct tax audits, and if you don’t have receipts or payment records, your claims can be rejected.

To avoid losing your deductions:

Keep all receipts, invoices, and payment proofs for at least 7 years.
Organize them properly by category (education, medical, donations, etc.) to make tax filing easier.
Use digital copies by scanning receipts to prevent losing them.

Without proper documentation, even legitimate deductions might not be accepted.

Misreporting Expenses

Claiming ineligible deductions or entering incorrect amounts can lead to problems with LHDN. Some taxpayers mistakenly claim:

Personal expenses that are not tax-deductible.
Non-qualifying donations (only donations to LHDN-approved charities are deductible).
Medical expenses for non-dependents (claims are only allowed for yourself, spouse, parents, or children).

Making errors in reporting may result in penalties or even an audit from LHDN. Always check which expenses qualify before claiming them.

Missing the Filing Deadline

Submitting your tax return late can result in unnecessary fines and penalties.

If you miss these deadlines, you may face late submission fines or even lose certain tax rebates.

Filing on time not only helps you avoid penalties but also gives you enough time to review your claims carefully.

Bonus Tips

Feel unsure about certain deductions or rebates? it’s always best to ask an expert.

A tax consultant can help you file correctly, reduce tax liabilities, and avoid mistakes that could lead to penalties.

When and How to File Your Taxes in Malaysia

Taxpayers in Malaysia must file their tax returns every year. Here’s what you need to know:

Deadline for Filing Taxes

The due dates depend on the method of submission:

Manual Filing (Paper Submission): April 30, 2025
E-Filing (Online Submission): May 15, 2025

How to File Taxes

Malaysia's e-Filing system has made tax submission easier and more accessible.

Online: Use LHDN e-Filing for a faster and more convenient submission.
Manual submission: Visit an LHDN branch for in-person filing.

Documents Needed for Filing

To avoid errors and support your claims, you must have the following documents ready:

For Salaried Employees

EA Form: Issued by your employer, this form summarizes your total earnings, tax deductions (PCB), and EPF contributions.
Receipts for deductions: Medical bills, insurance payments, education fees, and donations must have valid receipts.
Bank statements: If you are claiming tax deductions for home loans, savings schemes, or investments.

For Self-Employed Individuals

Business income records: Sales invoices, client payments, rental income, and earnings from side businesses.
Expense receipts: Proof of business-related expenses such as office rent, internet, phone bills, and equipment purchases.
Tax deduction receipts: Any deductible expenses, such as business insurance, employee salaries, or professional memberships.

For Business Owners and Freelancers

Profit and loss statements: A summary of revenue, expenses, and net earnings.
Tax installment payments (CP500 Form): If you have already made advance tax payments, include this in your filing.
Loan and investment documents: If you have any interest-bearing loans or taxable investments.

Understanding tax deductions and rebates helps reduce your tax burden while staying compliant with Malaysian tax laws.

Whether you’re an employee or employer, knowing how to claim these benefits ensures you don’t pay more tax than necessary.

Check the latest LHDN tax reliefs, keep your records, and file your taxes on time to maximize your savings.

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