Rental Income Tax in Malaysia: How It Works & What You Need to Pay

We set the stage for landlords and property owners in Malaysia. This guide explains what counts as rent, why it is chargeable under the Income Tax Act 1967, and how different classifications affect your deductions.

Under the law, letting a flat or shop lot can be treated as passive letting or as business activity when you provide services. That choice matters. It affects allowable expenses, loss treatment, and capital allowances.

Residents face progressive rates on net profits, while non-residents pay a flat rate and miss personal reliefs. We focus on net profit calculations, proper documents, and steps to file correctly so you keep more of your rental returns and avoid penalties.

Key Takeaways

• We clarify what qualifies as taxable rent under Section 4 and the Act 1967.
• Classification as passive or business changes your claimable deductions.
• Tax is computed on net profits after allowable expenses, not on gross receipts.
• Residents and non-residents face different rates and relief rules.
• Organized records and timely e-Filing reduce compliance risk.

Understanding Rental Income Tax in Malaysia under the Income Tax Act 1967

How you operate and support a rented property determines whether returns are treated as passive receipts or business proceeds. We define proceeds broadly to include payments for residential homes, shop offices and selected movable assets.

Under the income tax act and the tax act 1967, passive letting is normally captured by section 4(d). When you supply comprehensive services, the source may shift to 4(a) and be treated as business income.

• Passive letting: limited to direct allowable costs and no capital allowances.
• Business source: broader deductions under Section 33(1) and capital allowances may apply.
• Loss rules: passive losses cannot be carried forward; business losses have set-off and carry‑forward options.

Section 4(a) vs Section 4(d): How your rental is taxed and why it matters

Whether a letting is seen as passive or as a business depends on the level of services you deliver to tenants. We outline how classification affects allowable claims, record needs, and annual cash flow.

Passive source under Section 4(d) applies when you only collect payments and meet basic statutory outgoings. Only direct costs are deductible, capital allowances are not available, and losses cannot be carried forward beyond the year.

Business source under Section 4(a) applies when you provide comprehensive services such as cleaning, security or active tenant management. You may claim broader deductions under Section 33(1) and capital allowances for qualifying assets. Current year losses can be set off and carried forward per prevailing rules.

“Classifying correctly protects your claims and avoids penalties.”

• Indicators of a business source: systematic maintenance services, tenant management, and ongoing operational support.
• Documentation: full accounts, asset registers, and invoices support indirect expense claims and capital allowances.
• Example: a building with only rent collectors is likely 4(d); the same building with a service team may be 4(a).

income tax on rental income: what’s deductible and what isn’t

We outline which charges you may claim and which you must treat as capital. This helps you report accurate net results and avoid disputes.

Direct deductible expenses

Claimable items include assessment tax, quit rent and interest on loans attributable to the period the unit was let.

Other allowable costs are fire insurance, rent collection charges, agent commission for replacement tenants, stamp duty on renewal, tenancy renewal legal fees, repairs that restore condition, strata service charges and sinking fund contributions.

Non-deductible and capital items

Do not claim first-tenant advertising, initial agent fees, initial legal fees or stamp duty for the first tenancy agreement. Renovations and improvements that enhance value are capital and not deductible under passive letting.

Grouping multiple properties and limits

Under Section 4(d) you may aggregate receipts and expenses across units in the same year to offset peaks and void periods.

Important: an overall net loss under 4(d) is disregarded and cannot be carried forward. If your letting qualifies as a business source under 4(a), wider deductions and capital allowances may apply and losses may be carried forward.

“Keep invoices and separate interest from principal. Correct records protect your claims.”

• Maintain a per-unit schedule for assessment tax, quit rent, insurance, maintenance and repairs.
• Distinguish renewal fees from initial setup costs before you prepare returns.

How to calculate your net rental income (with a worked example)

We begin with a clear method to convert gross receipts into the net figure you report each year. Follow a simple sequence so your figures match bank records and the assessment rules.

Step-by-step: gross receipts, allowable deductions and timing

Record total rent received in the year. Only count amounts actually received within the year; late payments belong to the year they arrive.

Deductible items include assessment charges, quit rent, repairs that restore condition and agent fees for replacement tenants. Do not deduct pre-rental setup or capital upgrades.

Worked example: 12-month tenancy

Monthly rent RM1,000 for 12 months gives RM12,000 gross. Deduct assessment RM500, quit rent RM50 and repairs RM5,000.

Computation: RM12,000 − RM5,550 = RM6,450. This is the net rental you report for that year.

• We emphasize receipt basis: December rent collected in January counts in the next year.
• Keep a ledger matching bank entries to invoices for a clean audit trail.
• If the result is negative under Section 4(d), you have no taxable figure that year; under 4(a) different carry‑forward rules apply.

Tax rates, residency status, and companies: what landlords pay

We outline how residency and entity form affect the rate you face and the reliefs available. This helps you plan cash flow and estimate annual obligations.

Resident individuals vs non-residents

Resident individuals have their net profits aggregated with other chargeable amounts and taxed under progressive bands up to 30% for higher brackets.

Non-resident persons face a flat 30% rate and cannot claim personal reliefs. That gap can materially change after‑profit outcomes.

Corporate landlords and Section 4(a) considerations

Companies generally pay a corporate rate of 24% on taxable profits. Firms operating portfolios with services commonly fall under Section 4(a).

Under 4(a), businesses can claim broader deductions and capital allowances. Business losses may be set off and carried forward, unlike passive losses under 4(d).

• Individuals with passive lettings often remain under 4(d) and forfeit loss carry‑forward.
• Companies or active operators benefit from expanded claims but must meet documentation standards.
• Review entity structure annually to confirm the most efficient arrangement for your properties.

LHDN e-Filing timelines and forms for the present filing season

We map the key deadlines and show where to report rent in MyTax so you can file correctly for the current year of assessment.

Deadlines and where to file

For YA 2024 filed in 2025 use these cutoffs:

• Form BE (resident individuals without business): 30 Apr (manual) or 15 May (e‑Filing).
• Form B (residents with business): 30 Jun (manual) or 15 Jul (e‑Filing).
• Form M (non‑residents): 30 Apr (manual) or 15 May (e‑Filing).
• Form C (companies): within seven months after financial year end; e‑filing is mandatory for companies.

Where to declare rent in MyTax

Report passive rental under Section 4(d) to the “Statutory income from rents” field (e.g., BE Part B2).

Report business rental under Section 4(a) within your business computation (e.g., B).

“Prepare schedules early, align receipt timing with the year of assessment, and keep stamp duty records ready.”

We recommend e‑Filing via MyTax for speed, built‑in checks and easier attachments. Keep supporting schedules and bank records for any assessment queries.

Step-by-step: filing rental income via MyTax e-Filing

Start by confirming which MyTax form fits your situation: BE, B, M or C. If you are new, register via e‑Daftar before you file.

Log into MyTax and navigate to the e‑Filing section. Declare amounts from Section 4(d) in the “Statutory income from rents” field and enter any Section 4(a) figures within business computations.

• Check tenancy agreement dates and fees so receipts align with the year of assessment.
• Keep a ledger that reconciles bank receipts, expense vouchers and accounting worksheets.
• Group multiple properties under 4(d) where appropriate and keep per‑property schedules.

For non‑residents use Form M; companies file Form C. Resident individuals should complete personal reliefs before submission.

1. Review the computed figure in your working sheet and map it to the “Statutory income from rents” field (example: net RM6,450).
2. Submit by the due date and pay any balance via available payment channels.
3. Export the e‑Filing acknowledgment and store it with your supporting documents for audit readiness.

“Accurate records and timely filing reduce penalties and simplify any review.”

E-invoicing in Malaysia: what landlords need to know now

MyInvois and PEPPOL validation now shape invoice flows; landlords should assess systems and tenancy paperwork promptly.

Phased rollout and thresholds: The government started mandatory e-invoicing 1 Aug 2024 for turnover > RM100m. Subsequent phases are 1 Jan 2025 (> RM25m–RM100m), 1 Jul 2025 (RM500k–RM25m) and 1 Jan 2026 (RM150k–RM500k).

Who must issue e-invoices? A person who only receives passive payments under Section 4(d) generally falls outside the mandate. Landlords operating as a business (4(a)) and companies must comply once they hit a threshold.

Validation and connectivity: MyInvois validates documents and uses PEPPOL for secure exchange. A grace period allows monthly consolidated e-invoices at rollout, but you should plan for near real-time validation as the final state.

• Review whether services or regular maintenance services indicate business activity under Section 4(a).
• Align tenancy agreements and receipts so data fields required by MyInvois are present.
• Document invoice numbering, buyer details capture, and storage protocols for quick retrieval.

“Treat e-invoicing as both a compliance task and an opportunity to standardise records and reduce disputes.”

Practical next steps: assess your properties and streams, segment passive versus business receipts, and work with your software provider to integrate MyInvois and PEPPOL. We recommend monitoring LHDN updates and preparing buyer data capture now.

Common misconceptions, penalties, and compliance tips for landlords

We see many landlords assume property held as an investment is exempt. That belief is risky. In Malaysia regular receipts from letting are reportable and must be declared.

Misunderstandings about exempt “investment” receipts

Some owners omit cash flows when they think returns are passive capital. This mistake often leads to adjustments and assessments.

• Treating improvements as repairs is a common error.
• Omitting short‑term receipts during vacancies creates gaps in records.
• Mixing mixed‑use costs without allocation confuses accounting.

Initial vs recurring expenses and Section 113 penalties

Initial set-up costs — first-tenant advertising, initial agent fees, initial legal fees, stamp duty and pre-occupancy works — are not deductible. Renewals and ongoing repairs are allowable.

Section 113 penalties apply for under‑reporting. Prompt records and timely filing reduce exposure.

• Example: paint to prepare a unit at handover is capital; a later repaint after tenancy is a repair.
• Keep a tenancy calendar, invoices and bank receipts linked to each agreement.
• Review service levels; extra support or services can change your source classification and affect claims.

“A compliance-first approach saves time and protects your reputation.”

We recommend annual reviews of expense policies and prepared schedules to answer any LHDN queries quickly.

Conclusion

We recommend you prioritise correct classification of your letting as either Section 4(d) passive or Section 4(a) business. That choice drives deductions, loss treatment and long-term results for each property you hold.

Report figures as net rental income, not gross receipts. Valid claims include assessment tax, quit rent, repairs, service charges, renewal fees and stamp where applicable. Initial setup costs and capital upgrades remain non‑deductible under passive letting.

Keep clear tenancy agreement records, receipts, fire insurance and maintenance schedules. File timely via MyTax, follow the e‑invoicing roadmap if you operate as a business, and review whether the tax act 1967 treatment suits your portfolio.

We can review your position, refine expense policies and implement a compliance workflow so you focus on managing properties while we handle filing and planning.