The LHDN sets tax reliefs, and allows taxpayers to claim relief amounts from their taxable income for the relevant assessment year. The article will cover the following topics related to tax reliefs:
- Tax relief grid.
- Individual relief types.
- Mandatory tax relief.
- Optional tax relief.
- Adding documents as evidence.
- Increasing the relief threshold.
- Tax relief and opening balances.
- Adding a tax relief.
- Importing tax relief.
- Tax relief and PCB calculations.
- 2022 NEW tax relief types and thresholds.
Tax relief grid
You can view the individual relief types for each basis period by going to the Employee File Tax Relief page. The tax relief grid contains the following:
- Tax relief type: Mandatory/Optional.
- Individual relief type: The name of the tax relief.
- Amount/Threshold: If you select the override on the threshold, the amended saved value is used for the MTD calculation in future pay runs. I.e., if the RM 5,000 is updated to RM 2,000 for medical treatment, the MTD calculation in the pay run will cap the medical treatment at RM2,000 instead of RM5,000. If the current total was RM3,000, you would only use RM2,000 to offset the MTD tax.
- Multiplier/Current total: Multiplier applies to the mandatory tax reliefs. Current Total = YTD from pay runs and values added in the employee's opening balances.
- Documents: Click the Add button to upload evidence of the tax relief which we will save in to their employee portal.
Individual relief types
Within the Employee File Tax Relief page, you can view the tax relief types specific for each basis period. Make sure that you have selected the correct year from the following drop-down field. Follow the following link to go to the Inland Revenue Board of Malaysia for further details.
Mandatory tax relief
Mandatory tax reliefs are automatic tax reliefs that are given to employees depending on their circumstances; for example, marital status and number of children. We will include these reliefs automatically in the PCB calculation within your pay run.
Within the Employee File Tax Relief page, you can add the relevant number into the Multiplier field against the mandatory reliefs that the employee with an entitlement to claim. Once you edit the field, you will need to scroll down and click the Save button. Once you have changed these values, and you have included the employee in the pay runs for the basis year you can then go back into the pay run and unlock them before recalculating them to include the new tax relief settings.
If an employee claims 50% of the whole deduction for their child or children, you can select the 50% Claim tick box, which will then reduce the number of qualifying children for tax calculation purposes by 50%.
Optional tax relief
Optional tax reliefs are additional reliefs that employees can claim as long as they provide evidence and submit a TP1 form to their employer. The amounts are subject to restricted limits set by the LDHN or IRBM, and once you have reached these limits for the basis year, your employees are unable to claim anymore.
The current total values displayed are the year-to-date totals for the employee. We obtained these values from finalised pay runs for the selected basis period, which we determined based on the date paid of the pay run. If changes are required to these values, you will need to process an adjustment in a pay run.
Adding documents as evidence
Proof of documentation or receipt in the event of a tax audit must support any tax relief that an employee claims. You can add this documentation to an employees' file by going to their Employee File Tax Relief page. To add the supporting documentation, click the 'Add' button against the required tax relief. You then simply need to select the file and it will be visible within the documents column. To remove this, click the button.
Increasing the relief threshold
In some cases, you can increase the threshold within the platform for tax relief for an individual employee. You can do this by going to the Employee File Tax Relief page. The tax relief categories that you can increase/decrease the threshold for include:
- Medical treatment, special needs, and carer expenses for parents i.e. medical conditions certified by medical practitioner.
- Basic supporting equipment for disabled self, spouse, child, or parent.
- Medical expenses for serious diseases for self, spouse or child.
- Complete medical examination.
- Lifestyle expenditures for personal use, husband / wife or children.
- Purchase of breastfeeding equipment for own use for a child aged two years and below
- Child care fees to a registered child care centre / kindergarten for a child aged six years and below.
- Net deposit in Skim Simpanan Pendidikan Nasional (SSPN).
- Life insurance.
- Private Retirement Scheme (PRS) and deferred annuity.
- Education and medical insurance.
- Contribution to the Social Security Organisation (SOCSO).
- Payment of alimony to former wife.
- Payment for accommodation at premises registered with the Commissioner of Tourism and entrance fee to a tourist attraction.
To edit the threshold amount for the above tax reliefs, select the Override option against the relevant category and enter the new amount within the Amount (RM) field. Remember to scroll down to the bottom and click the Save button. Although the platform has the functionality to allow you to override these threshold limits, it is the responsibility of the user to check the limits allowed by the LHDN for each tax relief.
Tax relief and opening balances
We have devided the tax reliefs within an Employee Files Opening Balances page into two columns:
- RM amount: This field is where you enter any historical tax relief amounts applicable to the employee for the basis period that you hav set on the Payroll Settings Opening balance settings page. These are amounts that you have not previously processed within a pay run within your current payroll platform.
- Total RM amount: This reflects the total amount of tax relief for that category that you processed within a finalised pay run for the basis period that you set on the Payroll Settings Opening Balance Settings page.
Although we reflect pay run totals for tax reliefs in the Total RM Amount field of opening balances, you can not edit this field. If there are any adjustments you need to make, you will have to do it via a pay run as an adjustment.
Adding tax relief
You can add tax relief either from within an unfinalised pay run or as a pay run inclusion.
Adding tax relief within a pay run
From within an unfinalised pay run, you can add a tax relief for an employee by clicking on their name to expand the pay run details. You will then click on the Actions button followed by the Add Tax Relief button. You can then select the required tax relief from the drop-down field, enter any notes, and add the value within the RM field. Once you click the Save button and finalise the pay run, this data will show on the employees' Opening Balances page within the Total RM Amount field.
Adding tax relief as a pay-run inclusion
You can set up a recurring deduction for tax relief by going to the Employee File Pay Run inclusions page. You can only set this process up for a recurring deduction.
Importing tax relief into your opening balances
You can bulk import tax relief into your opening balances. To do this, you can gain a template by going to the Payroll Settings Data Extracts page and exporting the Tax Relief file. The file contains all optional tax reliefs, along with the income tax number, and employee name.
Once the required updates have been made and the file saved, you can go into the Payroll Settings Opening Balances page and click the Import button to the right of the page, and the click the Tax Reliefs button.
You can then upload the saved template and import the file. Once successful, affected employees will have their opening balances page updated to include the new tax relief data. The tax relief items are:
- Medical/care for parents.
- Medical/care for father only.
- Medical/care for mother only.
- Basic support equipment for self/family.
- Degrees - studies/higher education fees.
- Courses - studies/higher education fees.
- Medical expenses for self/family.
- Complete medical examination.
- Lifestyle - expenditure for personal use.
- Lifestyle - sports activities.
- Breastfeeding equipment.
- Child care fees.
- Skim Simpanan Pendidikan Nasional (SSPN).
- Life insurance.
- Private retirement scheme/ annuity.
- Education and medical insurance.
- Social security organisation (SOCSO).
- Payment for alimony.
- Domestic tourism expenditure.
To import employee opening balances, go to Payroll Settings Opening Balances. Next, click the Import button. Then select the file, that you wish to upload and then click the Upload button. You will then need to click the Confirm Upload button.
Tax reliefs and PCB calculations
Within a pay run, you can see a breakdown of tax reliefs that you applied to each employee, via a tax calculation context panel. To see this context panel, click on the employees name and then click on the button within the Tax column. From there, you will see a breakdown of both mandatory highlighted in yellow, and optional highlighted in purple deductions.
For example, if an employee is a married spouse not working with three children, you can confirm this by looking at the settings on their Employee File Statutory Details page. Regarding the number of qualifying children within the context panel, for example, a figure of nine does not mean that the employee has nine children; rather, it follows the IRBM logic of:
- The employee has three children;
- Two children under 18 yrs old which has a tax relief of RM2000 each = RM4000 total;
- The 3rd child is a person with disabilities which has a tax relief of RM14000;
- RM14000 child with disabilities + RM4000 (2 children) = RM18000;
- The IRBM logic is RM18000 total figure /RM2000 (standard child threshold) = 9.
Regarding how tax reliefs affect tax rates for individual employees, the Potongan Cukai Bulanan (PCB) consists of estimating the annual taxable income of the employee. You would then deduct allowable deductions (tax reliefs), and apply the tax rates to that chargeable income. The tax rebates and PCB already paid in previous months are deducted and you would then spread the remaining PCB out over the current and remaining months. For more details on how the tax is calculated. Click here to access the LHDN online tax calculator.
You can use the following reports to track the tax reliefs you processed for your employees:
- CP39: Lists all employees and the tax deductions you made on their behalf, and you can run the report and send it through to the IRB monthly.
- PCB withholding report: Shows a breakdown of the withholding tax, both withholding and clearance withheld per month for a specified date range or pay run.
- Pay run inclusions report: Details all the pay run inclusions and additional earnings lines set up for each employee
2022 NEW tax relief types and updated thresholds
There are three new tax items for 2022. These include:
- Covid19 vaccination expenses on self, spouse or child;
- Purchase of a personal computer, smartphone or tablet for the use/benefit of self, spouse, or child and not for business use;
- Expenditure on payment of electric vehicle charging facilities
In addition to the above, for existing tax relief items, they updated, the threshold in 2022 for:
- Degrees other than masters or doctors of philosophy: Previously RM6,000, now RM 7,000;
- Course fees for skill improvement and self improvement: Previously RM1,000, now RM2,000
- Contribution to the Social Security Organisation (SOCSO) and Employment Insurance System (EIS): Previously RM250, now RM350
There were other changes made to tax reliefs by extending the year of assessment further, such as:
- Child care fees extended until the year of assessment 2023;
- Domestic tourism expenditure until the year of assessment 2022;
- Additional lifestyle -purchase of mobile phones, computers and tablets until the year of assessment 2022;
- Deferred annuities until the year of assessment 2025.
Navigate to the Employee File Tax Reliefs page to view the applicable tax reliefs and thresholds.