Tax reliefs are set by LHDN, and allows a taxpayer to claim relief amounts from their taxable income for the relevant assessment year.
This 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
Tax relief grid
You are able to view the individual relief types for each basis period by going into an 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 override is selected 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 only RM2,000 will be used to offset the MTD tax;
- Multiplier/Current total: 'Multiplier' applies to the mandatory tax reliefs (more details below). 'Current Total' = YTD from pay runs + values added in the employee's opening balances;
- Documents: Click the 'Add' button to upload evidence of the tax relief which will be saved to the employee portal
Individual relief types
Within the Employee file > Tax relief page, you are able to view the tax relief types specific for each basis period. Ensure you have selected the correct year from the following drop down field:
Follow this link to be taken 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 circumstance, eg marital status and number of children. These reliefs will automatically be included in the PCB calculation within pay runs.
Within the Employee file > Tax relief page, you are able to add the relevant number into the 'Multiplier' field against the mandatory reliefs that the employee is entitled to claim:
Once that field has been edited, you'll need to scroll down and click the 'Save' button. Once these values have been changed, and the employee has already been included in pay runs for the basis year, you are able to then go back into those pay runs and unlock before recalculating them in order to include the new tax relief settings.
Optional tax relief
Adding documents as evidence
Every tax relief that the employee is claiming for must be supported by proof of documentation or receipt in the event of a tax audit. You are able to 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 trash can icon.
Increasing the relief threshold
In some cases, you are able to increase the threshold within the system for a tax relief for an individual employee. You are able to do this by going to the Employee file > Tax relief page.
The tax relief categories that you are able to increase/decrease the threshold for include:
Medical treatment, special needs and carer expenses for parents (Medical condition certified by medical practitioner)
Basic supporting equipment for disabled self, spouse, child or parent
Education fees (Self):
- Medical expenses for serious diseases for self, spouse or child
- Complete medical examination.
- Lifestyle - Expenditure for personal use, husband / wife or children
- Purchase of breastfeeding equipment for own use for a child aged 2 years and below;
- Child care fees to a registered child care centre / kindergarten for a child aged 6 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
In order to edit the threshold amount for the above tax reliefs, tick 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 'Save'.
NB: Although the system has the functionality to allow these thresholds limits to be overridden, it is the responsibility of the user to check the limits allowed by the LHDN for each tax relief.
Tax relief and opening balances
Tax reliefs within an Employee file > Opening balances page are divided into 2 columns:
- RM amount: This field is where you enter any historic tax relief amounts applicable to the employee for the basis period that has been set on the Payroll settings > Opening balance settings page. These are amounts that have not previously been processed within a pay run within the current payroll system;
- Total RM amount: This reflects the total amount of tax relief for that category that has been processed within a finalised pay run for the basis period that has been set on the Payroll settings > Opening balance settings page:
NB: Although pay run totals for tax reliefs are reflected in the 'Total RM amount' field of opening balances, this is not an editable field. If there are any adjustments to be made, it cant be done within the opening balance page, instead, it has to be done within a pay run as an adjustment.
Adding a tax relief
You can add a tax relief via 2 ways:
- From within an unfinalised pay run
- As a pay run inclusion
Adding a 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, then clicking on the Actions > Add tax relief option:
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 'Save' and finalise the pay run, this data will be visible on the employees' 'Opening balances' page within the 'Total RM amount' field.
Adding a tax relief as a pay run inclusion
You are able to set up a recurring deduction for tax relief by going to the Employee file > Pay run inclusions page. This article will provide specific instructions.
NB: Only optional tax reliefs are available to set up a recurring deduction for.
Importing tax reliefs into opening balances
You are able to bulk import tax reliefs into opening balances. In order to do this, you can gain a template by going to the Payroll settings > Data extracts page and exporting an 'Employee tax reliefs' file.
This 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 select 'Tax reliefs':
You can then upload the saved template and import the file. Once successful, the affected employees will have their opening balances page updated to include the new tax relief data.
Tax reliefs and PCB calculations
Within a pay run, you are able to see a breakdown of tax reliefs that have 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 '?' icon within the 'Tax' column:
From there, you'll see a breakdown of both mandatory (highlighted in yellow below), and optional (highlighted in purple below) deductions:
In the example above, the employee is married (spouse not working) with 3 children, and this is confirmed by looking at the settings on his Employee file > Statutory details page:
Based on this, the employee is able to claim as a tax relief, the mandatory deductions of:
- RM9,000.00 in respect of himself and his dependent relatives;
- RM4,000.00 for a spouse; and
- RM2,000.00 for each children under the age of 18 years (RM2,000.00 being the total threshold).
Additionally, RM1,000.00 has been added within the pay run for 'Medical treatment, special needs and carer expenses incurred on parents' which (along with documentation as evidence) constitutes an optional tax relief:
This amount within the context panel shows as 'Other deductions for current month' (highlighted in purple in the earlier screenshot).
NB: In regards to the number of qualifying children within the context panel, for example:
This figure does not always correspond with the total number of children that the employee has. In the image above, the figure of 9 doesn't mean that the employee has 9 children, rather, it follows the IRBM logic of:
- The employee has 3 children;
- 2 children are under 18 yrs old which has a tax relief of RM2000 each (= RM4000 total);
- The 3rd child is disabled which has a tax relief of RM14000;
- RM14000 (disabled child) + RM4000 (2 children) = RM18000;
- The IRBM logic is RM18000 (total figure) /RM2000 (standard child threshold) = 9.
In regards to how tax reliefs affect tax rates for individual employees, Potongan Cukai Bulanan ('PCB' Malay for "monthly tax deduction") calculation consists in estimating the annual taxable income of the employee, then deducting allowable deductions (tax reliefs), and applying the tax rates to that chargeable income. The tax rebates and PCB already paid in previous months are deducted and the remaining PCB spread out over the current and remaining months. For more details on how the tax is calculated, refer to the PCB tax calculation article.
Click here to access the LHDN online tax calculator.
The following reports can be used in order to track tax reliefs that have been processed for employees:
- CP39: Lists all employees and the tax deductions that are made on their behalf. This can be run and sent 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
NB: The PCB2 report is currently under development and will be available at a later date.
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