What Kind of Allowances that are Tax Exempt?

In Malaysia, employees are allowed to claim tax exemptions for the benefits / perquisites below, unless the employee has shareholding or voting power in the company.

Here are the 14 tax exempt allowances / gifts / benefits / perquisites:

1. Petrol allowance, petrol card, travelling allowance or toll payment or any combination

Tax exempt up to RM 6,000 per year (only if used for official duties). More than RM 6,000 may be claimed if records are kept for 7 years.

2. Child care allowance for children up to 12 years of age

Tax exempt up to RM 2,400 per year. This includes payment by the employer directly to the child care.

3. Subsidised loans (internal funds)

If the loan comes from internal company funds, then it is exempted from tax.

4.Subsidies loans (external funds)

Subsidised interest for education, housing or car loan is fully exempted from tax if the total amount of loan taken in aggregate does not exceed RM300,000.

If the total amount of loan exceeds RM300,000, the amount of subsidized interest to be exempted from tax is limited in accordance with the following formula:

(A x B) / C
 

where:
A = the difference between the amount of interest to be borne by the employee and the amount of interest payable by the employee in the basis period for a year of assessment;
B = the aggregate of the balance of the principal amount of housing, education or car loan taken by the employee in the basis period for a year of assessment or RM300,000, whichever is lower;
C = the total aggregate of the principal amount of housing, education or car loan taken by the employee.

5. Utility bills in name of the employee

Monthly bills for subscription of broadband, mobile phone, fixed line telephone, and mobile phone, registered in the name of the employee or employer, including cost of registration and installation, are tax exempt. This is limited to 1 line for each category of asset.

6. Parking rate or parking allowance

As long the amount is not unreasonable, this benefit is also tax exempt. This includes payment by the employer directly to the parking operator.

7. Meal allowance

Same as above, tax exempt as long as the amount is not unreasonable and is:
 

• Provided to the employee on a regular basis, and

• Provided to all employees at the same rate; or

• Provided to the employee to cover their meals during overtime or overseas travel or other similar purposes.

The meal allowance is paid according to the employee’s position, duties or place where the employment is exercised.

8. Insurance premiums

These are tax exempt provided that they are:
 

• Group insurance premiums to cover workers in the event of an injury or accident.

• Insurance premiums on insurance policies under the Aviation Travel Insurance for employees for coverage of employees for travelling on official duty.

• Contributions by employer to the health care management organisation for payment of the medical and treatment costs of employees.

9. Professional subscriptions

Tax exempt, provided that membership to that professional body is essential or important to the business of the employer in terms of enhancement of knowledge for the employee to facilitate them in carrying out their duties.

10. Scholarship

Any sum paid by way or in the nature of a scholarship or other similar grant or allowance to an individual, whether or not in connection with an employment of that individual are tax exempt.

Although, the salary paid to an employee during the study leave period is taxable as income from employment. This is because the employee is regarded as having an employment, even though they are not exercising their employment.

11. Assets provided free of charge or sold at discounted prices

A gift of a fixed line telephone or mobile phone which is registered under the name of the employee is fully exempted from tax. This also includes cost of registration and installation. The exemption given is limited to 1 unit for each asset.

12. Gift vouchers

Tax exempt unless they are of a recurring nature and are provided in the circumstances where the employee expects such gifts as part of remuneration.

13. Pure gifts

Pure gifts or testimonials received by an employee from the employer or third parties purely for personal appreciation or for specific personal reasons are not taxable as such gifts are not related to having or exercising the employment, for example:
 

• Wedding gifts

• Prizes for extraordinary feats, such as climbing Everest

14. Rewards related to employment

Tax exempt in the following events:

• For past achievement

• Service excellence

• Long service: employee must have worked with the same company/group of companies for more than 10 years.

Source: LHDN

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