Individual income tax: the basics you need to know

What is income tax?

Income tax is a tax imposed every year on a person who receives income of a gains nature.

Under the Income Tax Act 1967 (ITA), taxable income includes:

1. Gains or profits from a business;
2. Gains or profits from employment;
3. Dividends, interest or discounts;
4. Rents, royalties or premiums;
5. Pensions, annuities or other periodical payments;
6. Other gains or profits not included above.

HASiL (Inland Revenue Board of Malaysia) is the agency under the Ministry of Finance responsible for collecting and administering the country's direct taxes.

Source: HASiL — Introduction to Individual Income Tax; Income Tax Act 1967, s.4 (see Official sources section).

Who is taxed?

Tax is imposed on every individual on income that accrues or arises in Malaysia, or is received in Malaysia from outside Malaysia, for each year of assessment. The scope of taxation depends on residence status:

• Resident individuals are taxed at progressive rates (Schedule 1 Part I) and are eligible to claim deductions under s.45A to s.49 of the ITA.
• Non-resident individuals are taxed at a flat rate of 30% and are not entitled to any deductions.

Income from foreign sources brought into Malaysia (remittances) is exempt from tax for individuals. (Note: the treatment of remittances changed from 2022 for certain categories — refer to the foreign income guide.)

Source: HASiL — Introduction to Individual Income Tax; Income Tax Act 1967, s.3 (see Official sources section).

When are you taxed?

You need to report income if:

• You receive annual employment income exceeding RM37,333 (or RM3,111 per month), OR
• You have Monthly Tax Deduction (PCB), OR
• You carry on a business (no minimum threshold).

This threshold takes into account the basic reliefs (self and dependants, spouse, children under 18) and the RM400 rebate for chargeable income not exceeding RM35,000.

Source: HASiL — Introduction to Individual Income Tax: "When are you taxed?" (see Official sources section).

How is tax calculated?

Chargeable income is calculated according to the order in s.5(1) of the ITA:

1. Basis period;
2. Gross income;
3. Adjusted income (or adjusted loss);
4. Statutory income;
5. Aggregate income and total income;
6. Chargeable income.

Tax is then imposed at the rates prescribed in Schedule 1 Part I of the ITA.

Source: Income Tax Act 1967, s.5(1) and s.6(1)(a) (see Official sources section).

Progressive tax rates

For resident individuals, tax rates are progressive. According to the YA 2023, 2024 and 2025 tables displayed by HASiL:

• First RM5,000: 0%;
• RM5,001 to RM20,000: RM150 + 1% on the balance;
• Up to exceeding RM2,000,000: RM517,650 + 30% on the balance.

HASiL still displays the YA 2023–2025 tables as at the review date; YA 2026 rates will be updated when HASiL publishes them.

Source: HASiL — Tax Rates (individual) (see Official sources section).

Forms and filing periods

The form depends on your situation:

• Form BE: resident without carrying on a business;
• Form B: carrying on a business;
• Form M/BT/MT: non-resident and other cases.

Filing periods (subject to the annual Return Form (BN) Filing Program):

• Manual: BE — 30 April, B — 30 June;
• e-Filing: e-BE — 15 May, e-B — 15 July.

Source: HASiL — Report Income; Filing Period; FAQ (Individuals) Q11/Q12 (see Official sources section).

Basic rights and responsibilities

• Register for a TIN (Tax Identification Number) if you are liable to be taxed;
• Keep records for 7 years;
• Report your actual income every year.

Source: HASiL — FAQ (Individuals) Q8–Q10 (see Official sources section).

Simple example

Ali works and earns RM48,000 a year. Because his employment income exceeds RM37,333, he needs to report his income. He files Form BE via e-Filing before 15 May. After deducting his personal relief and other eligible claims, his chargeable income is calculated, and tax is imposed according to the rate bands in Schedule 1 Part I.

(Illustrative example to show concepts — not specific tax advice.)