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A Starter Guide for Young Employees on Tax Filing Basics
1. Basic Concepts for Tax Filings
A. Income Tax & Total Income
There are many sources of income an individual may have, including income from employment (“Employment Income”), ‘Rental Income’ from renting out properties, other additional sources of income not linked to employment, i.e., e-hailing, TikTok, selling products online, freelance work. All sources of income taken together are the Total Income are all subject to income tax.
B. Tax Deductions
Some of the items you purchase every year can be used to reduce the amount of income tax you pay. This is called a “Tax Deduction”. The items that can be used for Tax Deductions are called “Deductible Expenses”. Some common Deductible Expenses for individuals are buying medical and life insurance, buying laptops, phones and books, the cost of medical treatment, buying gym memberships and sports equipment, etc.
The Deductible Expenses and amounts that can be claimed, change every year. The list for each year can be obtained at https://www.hasil.gov.my/en/individual/individual-life-cycle/how-to-declare-income/tax-reliefs/.
C. Chargeable Income
Income Tax is imposed on “Chargeable Income”. Simply put:
[Chargeable Income = Total Income from All Sources – Total Tax Deductions / Relief]
D. Years of Assessment (Y/A)
For individuals, income tax is imposed on chargeable income for each calendar year (i.e., Total Income Earned - Total Tax Deductions/Relief anytime between 1 January to 31 December every year). This is known as the Year of Assessment (“Y/A”).
E. Deductible Expense Must Be Made in Same Year Income Earned
A Deductible Expense incurred in one year can only be used as a Tax Deduction against Total Income earned in that same year.
By illustration, if a Deductible Expense is incurred on/after 1.1.2023, it cannot be claimed as a Tax Deduction against Total Income earned for Y/A 2022 (i.e., income earned between 1.1.2022 to 31.12.2022) because the Deductible Expense was incurred in 2023 and not 2022. However, it can be claimed against income earned in Y/A 2023.
F. Annual Income Tax Return (ITR)
Every year that you have taxable income (> RM 34,000) you must file an Income Tax Return with LHDN (“Annual ITR”). An Annual ITR is a document that states the Total Income you earned the whole year and any Tax Deductions you are claiming.
G. Tax Filing Deadline
Unless you are carrying on a business, an individual must file their Annual ITR by 30 April of the following year. However, an EOT may be given. E.g., For Y/A 2022, the manual filing deadline is 30.4.2023 but for electronic filing, it is extended to 15.5.2023.
H. Monthly Tax Deduction (PCB) for Employment Income & EA- Forms
When you receive your monthly pay-slip, you will notice that a proportion of your salary has already been deducted for tax. This is known as a Potongan Cukai Bulanan (“PCB”). By law, your Employer must deduct the income tax for your Employment Income and send it to LHDN before you receive your salary. After the end of the year, your Employer will provide you with a Form called a Borang EA showing your total Employment Income for the year and the total PCB sent to LHDN.
Even though the tax on the Employment Income has already been sent to LHDN every month, the Annual ITR is still required for declaring your other sources of income and to claim your Tax Deductions. By claiming your Tax Deductions, you may be entitled to a refund of some of the income tax paid to LHDN via the PCB.
2. How to File an Annual Tax Return for Individuals
A. Registration
B. Electronic Filing
3. Final Things to Note
Once you complete your electronic filing, your Income Tax Return Form [BE-Form] will be generated. You should keep your BE-Form as well as proof for all Deductible Expenses claimed (such as receipts) for a period of at least 7 years.
If you carry on a business, a different filing process applies and a separate tax return form (Form B) must be submitted to LHDN.
See Part 2 for FAQ's on Tax Filings
This guide is limited to employment and personal income tax filings and is based upon the law applicable for Y/A 2022. This guide does not amount to legal advice and legalistic language and definitions have been omitted / summarised for ease of understanding.