Tax season 2026 is here — e-Filing for Year of Assessment (YA) 2025 runs from 1 March 2026, with the e-BE deadline on 15 May 2026 for employees without business income. If you are staring at your EA form wondering which allowances, perquisites and benefits are taxable and which are not, this guide is for you.
- What is Tax Exemption in Malaysia?
- What is the difference between perquisites and benefits-in-kind?
- How Tax Exemption Applies to Your Employment Income
- Tax-Exempt Allowances, Perquisites, Gifts, and Benefits (2026)
- Worked Example: How Much Tax Do Exemptions Actually Save?
- Other Tax-Exempt Income in 2026
- Common Mistakes to Avoid When Claiming Exemptions
- How to Check What Your Employer Reported
- Conclusion
- FAQ: Tax Exemptions in Malaysia
Many Malaysians overpay tax simply because they declare income that is actually exempt — or under-declare and risk an LHDN audit. Below we break down exactly what is tax-exempt in 2026, with the official limits, the common mistakes, and a worked example so you can file accurately.
Read also our guide on registering income tax in Malaysia (MyTax registration) and our step-by-step LHDN e-Filing guide.
What is Tax Exemption in Malaysia?
Under the Income Tax Act 1967, a tax exemption is income you do not need to include in your taxable income. For employees, the most common exemptions are specific allowances, perquisites, gifts and benefits-in-kind (BIK) provided by your employer — things like petrol allowance, meal allowance, a company phone, or childcare subsidies.
Tax exemptions are different from tax reliefs: exemptions remove income from your tax calculation entirely, while reliefs (like lifestyle relief or EPF relief) are deducted from your aggregate income afterwards. You can use both, and together they decide your final chargeable income.
One important exclusion: most of the employee exemptions below do NOT apply to directors of controlled companies, sole proprietors or partners in a partnership. If you run your own Sdn Bhd and pay yourself an allowance, check with a tax agent before claiming any exemption.
What is the difference between perquisites and benefits-in-kind?
A perquisite is a benefit from your employer that is cash, or can be converted into cash — it has money’s worth that you could sell, assign or transfer. Common examples: petrol or travel allowance, meal allowance, a phone-bill subsidy, or gift vouchers.
A benefit-in-kind (BIK) is a perk that cannot be converted into cash — you enjoy it, but you cannot sell it. Examples: a company car, a driver, free employer-provided medical care, or accommodation.
The distinction matters because LHDN values and taxes them differently. Perquisites are covered by Public Ruling No. 5/2019, while BIK are covered by Public Ruling No. 11/2019 — both still the operative rulings for YA 2025 filing in 2026.
How Tax Exemption Applies to Your Employment Income
Your statutory employment income includes salary, bonus, commissions, allowances, perquisites, BIK and even employer-provided accommodation — before deductions. Exempt items are removed from this figure, so every ringgit of exemption directly lowers your chargeable income.
Your employer reports exempt items separately in Part F of your EA form (“Tax Exempt Allowances / Perquisites / Gifts / Benefits”). When you file, you generally do not declare Part F amounts as income — a common and costly mistake is adding them back in and paying tax on income that was never taxable.
Below are the current exemption limits, verified against LHDN’s EA form notes and the PwC 2025/2026 Malaysian Tax Booklet.
Tax-Exempt Allowances, Perquisites, Gifts, and Benefits (2026)
Allowances: Fully Tax-Exempt vs. Partially Taxable
| Type of Allowance | Exemption Limit (per year) | Remarks |
| Petrol, travel & toll allowance (incl. petrol card) | Up to RM6,000 | – Must be for official duties (work travel, not home-to-office commuting). Amounts above RM6,000 are taxable on the excess, unless you keep records to claim actual official-duty expenses. |
| Meal allowance | Fully exempt | – Must be paid at a rate that is reasonable and given on a regular basis (e.g. monthly), or for overtime/outstation work. Unreasonably large amounts can be taxed. |
| Parking fees / parking allowance | Fully exempt | – Includes payments made directly by your employer to a parking operator. |
| Childcare & family care subsidy / allowance | Up to RM3,000 | – For children aged 12 and below. From YA 2025, the exemption also covers care allowances for your parents and grandparents (Budget 2025 expansion). |
Perquisites: Fully Tax-Exempt vs. Partially Taxable
| Type of Perquisite | Exemption Limit (per year) | Remarks |
| Scholarship | Fully exempt | n/a |
| Interest on subsidised loans | Exempt on loans totalling up to RM300,000 | – Applies to housing, passenger motor vehicle and education loans, funded from the company’s internal funds. Interest subsidy on loan amounts above RM300,000 is taxable proportionately. |
| Telephone / mobile phone, phone bills & broadband subscription | Fully exempt | – Limited to one unit per asset category (e.g. one phone, one broadband line), registered under the employer’s or employee’s name. |
| Income tax borne by employer | Not exempt | – Tax paid on your behalf is itself a taxable perquisite. |
Gifts & Awards: Fully Tax-Exempt vs. Partially Taxable
| Type of Gift / Award | Exemption Limit (per year) | Remarks |
| Employment awards | Up to RM2,000 | – Covers long service (more than 10 years with the same employer), past achievement, service excellence, innovation or productivity awards. Any value above RM2,000 is taxable. Bonuses are NOT awards — they are fully taxable. |
| Wedding or personal gifts | Fully exempt | – Applies to genuine non-monetary gifts given for personal reasons (e.g. wedding, festive token) rather than as a reward for work performed. |
Benefits-in-kind: Fully Tax-Exempt vs. Partially Taxable
| Type of Benefit-in-kind | Exemption Limit (per year) | Remarks |
| Medical & dental benefits | Fully exempt | – Includes maternity expenses and traditional medicine (acupuncture, ayurveda). |
| Leave passages (holiday travel paid by employer) | 3 local trips OR 1 overseas trip up to RM3,000 | – Local passages include fares, meals and accommodation; the overseas exemption covers fares only. |
| Employer’s own goods (free or discounted) | Up to RM1,000 | – Consumable products of your employer’s business, for you, your spouse and unmarried children. Discounts above RM1,000 are taxable on the excess. |
| Employer’s own services (free or discounted) | Fully exempt | – E.g. free flights for airline staff, free legal services at a law firm. |
| Smartphone, laptop or tablet provided by employer | Up to RM5,000 | – Flexible Work Arrangement incentive for devices given to employees. |
| Company car & fuel | Taxable at prescribed annual values | – Value scales with the car’s original cost: e.g. RM1,200/year (car up to RM50,000) to RM25,000/year (car above RM500,000), plus a separate fuel value — usually far below the car’s real cost, so a company car is still tax-efficient. |
This list covers the exemptions most employees will see on an EA form. For the complete technical detail and examples, refer directly to LHDN’s Public Ruling No. 11/2019 (Benefits in Kind) and Public Ruling No. 5/2019 (Perquisites from Employment).
Worked Example: How Much Tax Do Exemptions Actually Save?
Say you earn RM5,500/month (RM66,000/year) and your employer also gives you: RM500/month petrol allowance (RM6,000/year, all for client visits), RM200/month meal allowance (RM2,400/year), RM250/month childcare subsidy (RM3,000/year) and pays your RM100/month phone bill (RM1,200/year).
That is RM12,600 of benefits on top of salary — and every ringgit of it is exempt: petrol within the RM6,000 cap for official duties, meal allowance fully exempt, childcare within RM3,000, phone bill fully exempt (one line). You declare only RM66,000. At a marginal rate of 19% in that income band, the exemptions save you roughly RM2,400 in tax versus the same RM12,600 paid as plain salary.
This is also why a smartly structured salary package (allowances instead of pure salary) can leave you with more take-home pay — worth raising at your next offer negotiation.
Other Tax-Exempt Income in 2026
Beyond employer benefits, these common income types are also exempt for individual tax residents:
Bank interest — interest from licensed banks, Islamic banks and development financial institutions in Malaysia is fully exempt for individuals. That includes fixed deposit interest and savings account interest — there is no need to declare these.
Dividends — exempt under the single-tier system for most people. However, from YA 2025, individuals receiving more than RM100,000 in annual dividend income pay a 2% tax on the amount above RM100,000. Most retail investors are unaffected, but high-dividend portfolios should take note.
EPF dividends and withdrawals — fully exempt. See our EPF dividend guide for the latest rate.
Compensation for loss of employment — exempt at RM10,000 for each completed year of service with the same employer or group (fully exempt if due to ill health). Retrenchment payouts above that are taxable.
Retirement gratuity — fully exempt if you retire at the compulsory retirement age (or at 50–55 under your employment contract) after 10 years’ continuous service with the same employer, or retire due to ill health.
Pensions — exempt if received from the government or an approved scheme upon reaching age 55 / compulsory retirement age, or due to ill health.
Foreign-source income — dividend income received in Malaysia from abroad by individuals remains exempt (conditions apply) until 31 December 2036.
Women returning to work — income tax exemption under TalentCorp’s Career Comeback Programme is available until YA 2028 for women returning after a career break of at least two years (application required).
Common Mistakes to Avoid When Claiming Exemptions
1. Declaring Part F amounts as income. Exempt benefits are listed separately in Part F of your EA form. Only Part B (gross employment income) goes into your e-BE form — adding Part F back in means paying tax you do not owe.
2. Assuming the full travel allowance is exempt. Only RM6,000/year is exempt, and only for official duties. Daily commuting to your regular office does not count. If your allowance exceeds RM6,000, keep mileage logs and receipts — you may claim actual official-duty expenses instead.
3. Treating a bonus as an “award”. The RM2,000 award exemption covers long-service, innovation and excellence awards only. Performance bonuses are fully taxable, no matter what they are called.
4. Claiming exemptions as a company director. Directors of controlled companies (and sole proprietors/partners) are excluded from most of these exemptions. LHDN actively audits this area.
5. Not keeping records. Malaysia is a self-assessment system. Keep your EA forms, receipts and supporting documents for 7 years — if LHDN raises a query and you cannot support a claim, you face additional assessments plus penalties of up to 100% of the undercharged tax (45% for voluntary errors in many cases).
If you discover you have made a mistake in a submitted return, you can amend it: within 6 months of the deadline, file an Amended Return Form (BE); otherwise write to your LHDN branch with supporting documents.
How to Check What Your Employer Reported
Before filing, cross-check three things: (1) Part B of your EA form matches your payslips’ taxable gross; (2) exempt allowances appear in Part F, not Part B; (3) your MTD/PCB deductions in Part D match what was actually deducted. If an exempt allowance was wrongly included in Part B, ask HR for a corrected EA form before you file — it is far easier than amending a tax return later.
Your credit standing matters when LHDN issues are unresolved too — outstanding tax can affect travel restrictions and credit checks. Learn how to check your CTOS report as part of your annual financial health check, and don’t forget to claim donation tax deductions for approved gifts made in 2025.
Conclusion
Tax exemptions are the quietest way to keep more of your income: they are already built into how your employer reports your pay, and claiming them correctly requires nothing more than understanding your EA form. Check Part F, know the limits — RM6,000 travel, RM3,000 childcare/family care, RM2,000 awards, fully exempt meals, parking, phone and medical benefits — and file only your genuinely taxable income.
Figures verified June 2026 against LHDN’s EA form notes and the PwC 2025/2026 Malaysian Tax Booklet — confirm specifics with LHDN or a licensed tax agent for your situation, especially if you are a director or have unusual benefits.
Disclaimer: This article is provided by KayaToday for general information only and does not constitute tax advice. Tax treatment depends on your individual circumstances and may change. Please consult LHDN or a licensed tax agent before making tax decisions.
