Personal Income Tax 2016 Guide

PART 2

What Is A Tax Exemption?

Fortunately, taxpayers in Malaysia are not taxed on our total income, as certain portions of our income are tax exempted.

For income tax filed in Malaysia, we are entitled for certain tax exemptions that can reduce our overall chargeable income.

Tax exemptions either reduce or entirely eliminate your obligation to pay tax.

The following tax exemptions will not be included in the taxpayer’s EA Form:

Leave passage refers to vacation time paid for by

your employer, and is divided into two categories:

local and overseas.

You are entitled for tax exemption not exceeding three times in a year for

leave passage within Malaysia, and one leave

passage outside Malaysia not exceeding RM3,000.

Medical benefits provided by your employer is exempted from tax, and starting from Year of Assessment 2008 (tax filed in 2009), it has

been expanded to include maternity expenses and traditional medicine like

ayurvedic and acupuncture without limit.

The full amount of gratuity received by an employee on retirement from employment is exempt if:

• The Director General of Inland Revenue is satisfied that the retirement is due to ill health;

• Retirement on or after reaching the age of 55 years/compulsory age of retirement and the individual has worked 10 years continuously with the same employer or companies within the same group;

• The retirement takes place on reaching the compulsory age of retirement pursuant to a contract of employment or collective agreement at the age of 50 but before 55 and that employment has lasted for 10 years with the same employer or with companies in the same group.

Gratuity paid out of public funds on retirement from

an employment under any written law.

Gratuity paid out of public funds to a contract officer

on termination of a contract of employment

regardless of whether the contract is renewed or not.

This is payment made by an employer to his employee as compensation for loss of employment either before or after the date of termination, and it is exempted from tax.

This compensation is exempted from tax if compensation received is due to ill health, and these other cases:

• Termination before July 1, 2008 – exemption of RM6,000 for every completed year of service with the same employer or with companies in the same group.

• Termination on or after July 1, 2008 – exemption of RM10,000 for every completed year of service with the same employer or with companies in the same group

Compensation received by a director (not service director) of a Control Company is fully taxable.

Pensions received by an individual are exempt under the

following conditions:1. Tax payer retires at the age of

55 or at the compulsory age of retirement under any

written law; or2. If the retirement is due to ill

health and the pension is received from the government or from an approved pension

scheme.

For an employee in the public sector who elects for optional retirement, his pension will be

taxed until he attains the age of 55 or the compulsory age of

retirement under any written law. If the tax payer receives more

than one pension, the exemption will be on the highest pension

received.

Monies received as death gratuity is fully exempted from income

tax.

Any monies paid by way of scholarship to an individual

whether or not in connection with an employment of that individual

is exempted from income tax.

Money received for cultural performances approved by the Minister is exempted from tax.

Company special service awards

Company special service cash or prize awards is eligible for a tax

exemption of up to RM1,000.

Travelling allowances of up to RM6,000 for petrol and tolls are granted a tax exemption if the

vehicle used is not under ownership of the company. This

refers to the claims made by employees who are using their

personal vehicle for official duties.

Travelling Allowances

Types of Royalty ExemptionPublication of artistic works / recording discs / tapes RM10,000

Translation of books / literary works RM12,000

Publication of literary works /original paintings/musical compositions

RM20,000

Royalties received in respect of the use of copyrights/patents are taxable if they exceed the following exemption limits:

However, the exemption stated above does not apply if the payment received is considered part of the tax payer’s

payment for official duties.

With effect from the Year of Assessment 2004, fees or honorarium received by an individual in respect of services

provided for purposes of validation, moderation or accreditation of franchised education programmes in higher educational

institutions is exempted.

The services provided by an individual concerned have to be verified and acknowledged by the Malaysian Qualifications

Agency (MQA). However, the exemption does not apply if the payment received forms part of his emoluments in the exercise

of his official duties.

Income tax Malaysia starting from Year of Assessment 2004 (tax filed in 2005), income derived from outside

Malaysia and received in Malaysia by a resident individual is exempted from tax.

For example, if you take up a job while overseas and you only receive the payment for the job when you are

back in Malaysia.

Income received from the commercialisation of a scientific research finding is given tax exemption of 50% on the

statutory income in the basis year for a year of assessment for five years from the date the payment is made.

The individual scientist who received the said payment must be a citizen and a resident in Malaysia and the

commercialised research finding must be verified by the Ministry of Science, Technology and Environment.

Benefits in kind exemptionsCertain Benefits in Kind pertaining

to consumable services are not eligible for taxation.

Examples of consumable services are dental care, child care

benefits, food & drinks, special arranged transportation between

pick-up points and special discounts for consumable

products that cannot be resold (such as food or toiletries etc.).

Benefits in kind exemptions

Thank You…SOURCE : WWW.IMONEY.MY/ARTICLES/INCOME-TAX-2016/WHAT-IS-A-TAX-EXEMPTION

PART 3 COMING SOON