Travel Allowances: Taxable or Exempt?

The basics: allowances are part of employment income

Under section 13(1)(a) of the Income Tax Act 1967 (ITA 1967), allowances (including travel allowances) are part of gross employment income unless they are specifically exempted by HASiL or a legal provision.

This means: travel allowances are not automatically exempt — it depends on the type of allowance and the exemption conditions.

Source: Income Tax Act 1967, s.13(1)(a); HASiL — Public Ruling No. 5/2019 (PR 5/2019) §7.2 (see Official sources section).

Travel allowance exemptions (PR 5/2019 §7.2.1)

According to PR 5/2019, the following allowances may be exempted:

• Travel/petrol/toll allowances given to employees for:

1. travel between home and workplace, and/or
2. travel in the course of employment.

• If the employer cannot identify the apportionment, the exempt amount is capped at RM6,000.
• If the employee keeps proper records of travel in the course of duties, the employee may claim the actual amount as a deduction in computing employment income.

Source: HASiL — PR 5/2019, §7.2.1.

Parking allowances (§7.2.2)

Reasonable parking rates/parking allowances are exempt — including direct payments by the employer to the operator.

Source: HASiL — PR 5/2019, §7.2.2.

Meal allowances and per diem (§7.2.3)

• Meal allowances received on a regular basis (e.g. daily/monthly at the same rate to all employees) are exempt.
• Meal allowances for overtime/outstation/overseas work that are intended to cover meal costs are exempt if given based on rates in the employer's internal circular/written instruction.
• Per diem intended to cover meals is also included in this exemption.

Source: HASiL — PR 5/2019, §7.2.3.

Actual travel expenses: deduction vs reimbursement

It is important to distinguish three situations:

1. Allowance received — may be limitedly exempt (as above).
2. Actual expenses incurred and claimed as a deduction — an employee may claim entertainment and travel expenses incurred in producing gross employment income and performing official duties as a deduction. Entertainment deductions are limited to the amount of entertainment allowances included in gross income.
3. Reimbursement (recovery of actual costs by the employer) — not deductible and not taxable (neutral).

Source: HASiL — Form BE Explanatory Notes YA 2025 (B1); Form B Explanatory Notes YA 2025.

Small traders and freelancers

For small traders/freelancers, travel expenses incurred wholly and exclusively for the business are deductible under s.33(1) of the ITA. This is separate treatment from that for employees — do not mix them up.

Source: Income Tax Act 1967, s.33(1); cross-reference the small business expenses brief.

Remember

• Travel allowances are employment income unless specifically exempted.
• Travel/petrol/toll allowance exemption: up to RM6,000 if the employer cannot apportion; actual amount if records are proper.
• Reasonable parking and certain meal/outstation allowances are exempt.
• Home–workplace (commuting) travel is generally personal; the exemption covers allowances, not personal travel costs.
• Reimbursement = neutral (not taxable, not deductible).
• Small traders use s.33(1) for business travel costs.

Frequently Asked Questions (FAQ)

Q. The petrol allowance I receive every month — taxable? A. If it is for home–workplace travel and/or official duties, it qualifies for exemption; if the employer cannot apportion, up to RM6,000. Verify your situation.

Q. I bear official travel costs myself and am reimbursed by my employer. A. Reimbursement is not taxable and not deductible (neutral).

Q. I am a small trader — can I deduct fuel costs for my business? A. Yes, if wholly and exclusively for the business (s.33(1)).

Q. Are outstation meal allowances always exempt? A. Only if given based on rates in the employer's internal circular/written instruction (§7.2.3).

Glossary

• Allowance — additional payment on top of salary, part of employment income unless exempted.
• Perquisite — peripheral benefit from employment.
• Reimbursement — recovery of actual costs by the employer (neutral).
• Per diem — daily allowance to cover costs while on duty.
• MTD — Monthly Tax Deduction.
• YA — Year of Assessment.