[Malaysia] FAQ: How to Calculate Tax When Tax-Exempt Pay Items Reach Their Annual Limit (Classic)

For tax-exempt pay items, such as travelling allowances, the system will automatically treat any amount exceeding the annual tax-exempt limit as taxable.

Example:

The annual tax-exempt limit for travelling allowances is RM6,000.

If the employee has already reached the RM6,000 limit in June, any additional travelling allowance paid from July onwards will be fully taxable.

July Payroll:

• Travelling allowance: RM1,000
• Annual tax-exempt limit: RM6,000
• Tax-exempt limit: Already reached in June
• Taxable amount in July: RM1,000

The RM1,000 taxable amount will be included under Gross tips, awards/rewards or other allowances (excludes Perquisites).

How to Enter the Amount in the Tax Calculator

For the July payroll, enter the RM1,000 travelling allowance under:

Gross tips, awards/rewards or other allowances (excludes Perquisites)

Since the annual tax-exempt limit has already been reached, the full RM1,000 will be included as taxable income for July.