We clarify how Malaysia treats proceeds from letting property so you can report accurately and avoid penalties under the Income Tax Act 1967.
This guide explains the difference between Section 4(d) passive letting and Section 4(a) business letting. That split affects deductible expenses, capital allowances, and loss relief. We outline rates for residents and the flat 30% for non-residents.
You will get practical steps for timing receipts, computing net figures, and where to declare on MyTax using Forms BE, B, and M. We also cover LHDN deadlines, e-invoicing via MyInvois, and why many individual landlords are exempt from e-invoice rules.
Our aim is to show common errors that trigger Section 113 exposure and offer controls to prevent under-reporting. We keep examples simple so you can apply them to your property investment and planning for coming years.
Key Takeaways
- Know whether your letting is passive under Section 4(d) or business under Section 4(a).
- Residents use progressive brackets; non-residents face a flat 30% rate.
- Claim allowed costs correctly; avoid treating capital spends as deductions.
- File timely via MyTax and note the Form BE online deadline (15 May 2025 for YA 2024).
- Maintain records to reduce risk of Section 113 penalties and disputes with LHDN.
What “tax on rental income” means in Malaysia right now
Understanding how Malaysia classifies earnings from letting property is essential for correct reporting. We explain which receipts are treated as taxable and why classification matters for deductions and loss relief.
The Income Tax Act 1967 treats proceeds from letting as either passive under Section 4(d) or business under Section 4(a). Residents have progressive rates up to 30% on net figures; non-residents face a flat 30% and cannot claim personal reliefs.
Tax is computed on a receipt basis. That means rent is charged in the year you actually receive it. Expenses are matched to the period the unit is let, so timing matters for your annual assessment.
“Classify the source correctly and keep clear records; LHDN expects invoices, tenancy agreements, and bank statements to support your figures.”
Loss rules differ. Passive letting disallows carry forward of losses. Business letting permits offsets and carried forward unabsorbed losses. Plan cash flow and filing time accordingly.
| Classification | Resident rate | Non-resident rate | Loss treatment |
|---|---|---|---|
| Section 4(d) passive | Progressive up to 30% | 30% flat | No carry forward |
| Section 4(a) business | Progressive up to 30% | 30% flat | Offsets allowed; carry forward possible |
Classifying activity under the Income Tax Act 1967
We apply a practical test under the income tax act to decide whether letting is passive or a business source.
When Section 4(d) applies
Section 4(d) covers passive letting where you provide minimal support. Typical examples are basic leasing without ongoing maintenance services or tenant-facing activities.
Only direct costs tied to the tenancy are deductible. You cannot claim capital allowances. Losses may be netted across properties in the same year but cannot be carried forward.
When Section 4(a) applies
Section 4(a) applies where you or a manager provide comprehensive maintenance and tenant services. Regular cleaning, repairs, security, and bundled utilities suggest a business source.
Under Section 33(1) you may deduct direct and indirect costs wholly and exclusively incurred. Capital allowances on qualifying assets are claimable. Current year losses can offset other income and be carried forward.
Why classification matters
- Classification affects allowable deductions and capital allowance claims.
- Outsourcing can still meet the “comprehensive and active” threshold if services are broad and ongoing.
- Refer to PR 12/2018 for guidance and factual indicators.
| Feature | Section 4(d) | Section 4(a) |
|---|---|---|
| Services provided | Minimal, ad hoc | Regular, comprehensive |
| Deductible costs | Direct only | Direct and indirect |
| Capital allowances | No | Yes |
| Loss treatment | Net within year only | Offset other income; carry forward |
What counts as rental income and when it’s taxable
We set out how to recognise which receipts count as assessable and the year they fall into under the receipt basis.
Receipt basis: amounts are assessed in the year you actually receive them. If rent paid in January covers December, that payment belongs to the year received. The same rule applies to forfeited deposits, late fees, and reimbursements; include them when funds clear your account.
Aggregating multiple properties under Section 4(d)
For passive Section 4(d) lettings, you may combine proceeds and direct expenses across your properties. This produces one net figure for the year and can reduce the net chargeable amount where one unit has higher costs.
Vacant periods are treated pragmatically. Direct costs during a vacancy that relate to the letting period may offset other units’ proceeds. Pre‑letting capital costs and initial fit‑out must be excluded.
- Count monthly rent, penalties, and tenancy reimbursements when received.
- Match expenses to the period the unit was let for consistent assessment.
- A net negative position under Section 4(d) is disregarded and cannot be carried forward.
Allowable deductions vs non-deductible costs for landlords
We set out clear rules for what expenses landlords may claim and what counts as non-deductible capital spending.
Deductible items routinely include assessment tax, quit rent, interest on a home loan, fire insurance, rent collection charges, strata service charges, sinking fund contributions and sewerage charges.
Repairs that restore a unit—such as fixing leaks or repainting after wear—are an allowable expense. Replacing provided furnishings like air‑conditioners or fridges is treated as maintenance and is generally deductible.
- Agent commission for subsequent tenants and renewal legal fees and stamp are deductible.
- Advertising and agent fees to secure the first tenant, first tenancy legal fees and stamp, and renovation or improvement costs are non-deductible capital items.
For Section 4(a) business cases, indirect overheads wholly and exclusively incurred may be allowable and qualifying assets can attract capital allowances.
“Keep tenancy agreements, invoices, official receipts and bank statements for each unit; you need not attach them to your return but must retain them for LHDN review.”
| Item | Allowable | Notes |
|---|---|---|
| Assessment tax / quit rent | Yes | Deductible |
| First‑time legal / stamp | No | Capital |
| Repairs / replacements | Yes | Restore condition |
How to calculate your net rental income
We start by aggregating gross receipts for the year, then subtract only allowable expenses incurred while the unit was let. This disciplined approach ensures your figure matches the assessment rules and the receipt basis.
Worked example
Example: An apartment rents at RM1,000 per month for 12 months, giving RM12,000 gross rent.
| Item | Amount (RM) |
|---|---|
| Gross rent (12 months) | 12,000 |
| Assessment tax | 500 |
| Quit rent | 50 |
| Repairs | 5,000 |
| Net rental income | 6,450 |
Common pitfalls
Exclude pre‑letting renovations and capital upgrades. These are not allowed as deductions when computing your net figure.
Remove any personal‑use portion when the property is partly owner‑occupied. Shared facilities must be apportioned before you claim expenses.
- Compute on the receipt basis: include payments when cleared into your account.
- Treat forfeited deposits and tenant reimbursements as receipts when received.
- If the deducted rental income produces a loss under Section 4(d), that loss is disregarded; for business cases under Section 4(a), report losses to carry forward.
“Keep clear records of receipts, invoices and repairs to justify each deduction in your return.”
How to file rental income with LHDN via MyTax
Filing correctly with LHDN starts with choosing the right MyTax form and declaring proceeds in the proper field.
Which form to use and where to declare
Individuals with only passive lets must use Form BE and return figures under Statutory income from rents.
Use Form B where the activity is business‑source letting or when other business profit exists. Non‑resident individuals file Form M.
Deadlines for YA 2024 filed in 2025
- Form BE e‑Filing due 15 May 2025 (manual 30 Apr).
- Form M e‑Filing due 15 May 2025 (manual 30 Apr).
- Form B e‑Filing due 15 July 2025 (manual 30 Jun).
- Companies file within seven months after financial year end (e‑Filing mandated).
Residents vs non-residents and practical steps
Residents are taxed on progressive bands; non‑residents face a 30% flat rate and cannot claim personal reliefs.
Register via e‑Daftar, file through MyTax, and keep bank details current for refunds.
“Accurate figures and timely filing help avoid penalties under Section 113.”
If an agent collects rent, the landlord remains responsible for declaration. Retain tenancy agreements, invoices and bank statements for at least the review years.
E-invoicing in Malaysia: does it apply to your rental?
We explain who must issue electronic invoices under the MyInvois mandate and how that affects property owners in Malaysia.
If your letting is a business—because you provide regular services or maintenance services—you fall inside the mandate and must adopt e-invoicing per your FY2022 turnover band.
Individual passive landlords vs business and corporate landlords
Individual landlords with passive Section 4(d) lets typically do not need to issue e-invoices.
Individuals running letting as a business, sole traders and corporate persons must comply according to thresholds and register via MyInvois or an accredited PEPPOL provider.
Timeline and compliance tips: MyInvois, thresholds, and phased rollout into 2026
Phased dates (based on FY2022 turnover): 1 Aug 2024 (>RM100m); 1 Jan 2025 (RM25m–RM100m); 1 Jul 2025 (RM500k–RM25m); 1 Jan 2026 (RM150k–RM500k).
- Use the MyInvois portal for low volumes or integrate via API for automated accounting flows.
- Validate connectivity via PEPPOL and perform early testing with a service provider.
- Map invoice fields to LHDN requirements and retain digital records to substantiate reported rental income and other income.
| Types of person | Must issue e-invoice? | Recommended route |
|---|---|---|
| Individual passive (4[d]) | No | Standard receipts; keep records |
| Individual business / corporate | Yes | MyInvois portal or API via PEPPOL |
“Prepare early: onboarding, field mapping and validation reduce compliance risk and effort.”
Tax on rental income: common mistakes Malaysian landlords should avoid
A frequent cause of audits is mislabelling your letting activity and claiming the wrong deductions. We show practical errors to avoid so you can keep assessments defensible and reduce the risk of penalties.
Misclassifying Section 4(d) vs 4(a)
Classify activity correctly. Treating active management as passive denies capital allowances and carry‑forward relief.
Conversely, calling a passive let a business can trigger disallowed claims. Review tenancy terms and services before you file.
Wrongly claiming acquisition and capital costs
Do not deduct initial advertising, first‑tenancy legal fees, stamp duty, or renovation upgrades as routine costs.
These are capital in nature and must be treated separately from repairs and running expenses.
Mixing personal, capital and letting expenses
Keep separate accounts per property. Commingling personal spending with letting costs invites disallowances on audit.
Poor timing, records and missed e‑filing
Apply the receipt basis consistently and align expenses to the letting period. Exclude pre‑letting outlays.
Keep tenancy agreements, invoices and bank statements and meet MyTax deadlines. Reconcile bank flows to the declared net income to ensure figures are accurate and defensible.
“Under‑reporting and weak records are common triggers for Section 113 exposure.”
- Do not assume rental is an exempt investment; declare receipts when received.
- Avoid claiming capital upgrades as deductible repairs.
- Separate costs by property and retain supporting documents.
Tenancy agreements, maintenance services, and how they affect your tax
We examine how specific tenancy clauses and the level of services you provide steer classification and allowable deductions.
Start with the written agreement. A tenancy agreement that bundles regular cleaning, security or frequent repairs signals ongoing support. That pattern leans toward an active business source under Section 4(a).
How terms and services change your position
Where services are comprehensive, you may claim broader deductions and capital allowances. Where services are minimal, treatment remains passive under Section 4(d) and deductions are limited to direct costs.
- Bundled services: cleaning, security and scheduled maintenance often indicate a business source.
- Minimal support: ad hoc repairs keep the activity passive and restrict claims.
- Document fees: renewal legal fees and stamp duty are deductible; first‑tenancy legal fees and stamp duty are not for passive lets.
We recommend aligning the scope of services you promise with the expense profile you intend to claim. Keep detailed service schedules, contractor agreements and agent records to support classification in an LHDN review.
| Feature | Likely source | Deductibility |
|---|---|---|
| Bundled maintenance & services | Business | Broader claims |
| Minimal support | Passive | Direct expenses only |
| Renewal legal fees & stamp | Either (if business, clearer) | Deductible |
“Clear clauses and documented support demonstrate whether a letting is an active source or a passive arrangement.”
Conclusion
Conclusion
Before you file, verify classification and figures so your annual assessment matches the Income Tax Act 1967. We recommend reconciling gross receipts, allowable costs and tenancy agreements to a clear net rental income figure.
Claim assessment tax, quit rent, repairs and routine maintenance only where allowed, and exclude capital upgrades and first‑time fees. Use the correct form—BE, B or M—and meet the 2025 e‑Filing deadlines to avoid penalties.
If your services are comprehensive, assess capital allowances and loss carry‑forward opportunities. Standardise agreements and records across properties so you can support each declared net income in an LHDN review.
FAQ
What does tax on rental income mean in Malaysia right now?
It refers to the obligation to report earnings from letting real property under the Income Tax Act 1967. Whether you report as passive income under Section 4(d) or as a business source under Section 4(a) depends on the services and level of property management you provide. The distinction affects allowable deductions, loss treatment, and filing forms with LHDN.
How do I know if my letting is Section 4(d) passive income or Section 4(a) business income?
If you only collect rent and provide minimal services, it typically qualifies as passive income under Section 4(d). If you offer comprehensive maintenance, tenant services, frequent tenant turnover, or operate multiple units as a business, it may be classified under Section 4(a). Assess the level of service, regularity of transactions, and intent to profit to determine classification.
Why does classification under Section 4(d) versus 4(a) matter?
Classification determines which deductions you can claim, whether capital allowances apply, and how losses are treated. Business classification can allow for broader expense claims but also requires different filing (Form B) and record standards. Passive classification limits some capital treatments but follows simpler reporting (Form BE for residents).
What counts as taxable rent and when must I recognise it?
Taxable receipts include gross amounts received from tenants: base rent, service charges you retain, and other recurring sums. Use the receipt basis to recognise revenue and expenses in the year they are received or paid, unless accrual rules or specific provisions require otherwise.
If I own multiple properties, can I offset losses against profits from other lets?
Under Section 4(d), income and allowable expenses from properties of the same source can generally be netted to arrive at a single net figure. Ensure you keep separate records per property to substantiate losses and avoid disallowed set-offs when properties are treated as separate business sources.
Which expenses are deductible against letting revenue?
Allowable deductions include assessment tax, quit rent, interest on loans for the property, repairs and maintenance (not improvements), service charges actually incurred, and fees directly related to earning the receipts. You must have receipts, invoices, and supporting tenancy agreements.
Which costs are non-deductible or treated as capital items?
Capital improvements, initial tenant acquisition costs such as first-time legal fees and stamp duty for a tenancy agreement, and items that increase the property’s value are non-deductible and treated as capital expenditures. Only replacements that restore the asset to working order may be deductible.
How are tenancy agreement fees and stamp duty treated for tax purposes?
Stamp duty and legal fees for preparing an agreement at the start of a tenancy are capital in nature and not deductible as annual expenses. Renewal fees linked to continuing the letting may be deductible if they qualify as revenue expenses, but documentation is essential to support the treatment.
What records should landlords keep to support claims?
Maintain receipts, supplier invoices, bank statements, tenancy agreements, schedules of repairs versus improvements, and invoices for assessment tax and quit rent. Keep records for at least seven years to satisfy LHDN audits and to substantiate allowable deductions.
How do I calculate net rental income with an example?
Start with gross receipts from all tenancy agreements. Subtract allowable expenses: assessment tax, quit rent, interest, repairs, and service charges you paid. The remainder is net income subject to tax. For example, gross receipts of RM50,000 less allowable expenses of RM12,000 equals RM38,000 net.
What common pitfalls affect the net calculation?
Pitfalls include treating pre-letting costs as deductible, claiming capital improvements as repairs, ignoring personal-use portions of expenses, and failing to adjust for vacant periods. Separate capital and revenue items and apply the receipt basis consistently.
Which form do I use to declare earnings with LHDN via MyTax?
Residents with passive receipts use Form BE. If your letting is treated as a business, use Form B. Non-resident owners use Form M. Declare net figures in the appropriate sections and attach supporting schedules if required.
What are the filing deadlines for YA 2024 filed in 2025?
Deadlines vary: individual resident e-filing usually falls within the LHDN schedule for the assessment year; companies and non-residents follow separate timetables. Check the official MyTax e-Filing calendar for precise dates and allow time for penalties if filings are late.
Do residents and non-residents face different rates and penalties?
Yes. Residents are subject to progressive rates, while non-residents may face a flat rate (commonly 30% for certain categories). Under-reporting can trigger penalties and Section 113 assessments, so accurate declarations and timely filings are essential.
Must landlords issue e-invoices for receipts from tenants?
E-invoicing obligations depend on whether you operate as an individual passive landlord or as a business/corporate landlord and on thresholds set by MyInvois. Business landlords meeting thresholds will need to comply as the phased rollout continues into 2026; individual passive landlords may be exempt initially.
How do tenancy terms and maintenance services affect classification and deductibility?
Tenancy agreements that include regular cleaning, meals, concierge, or hotel-like services tip the activity toward a business source, allowing different deductions. Simple tenancy terms with landlord responsibility limited to standard repairs usually remain passive. Clearly document the scope of services in the agreement.
What common mistakes should Malaysian landlords avoid?
Avoid misclassifying the source under Section 4(d) vs 4(a), claiming capital improvements as routine deductions, mixing personal and property expenses, poor record-keeping, and missing e-filing deadlines. Regular reviews and professional accounting support reduce errors and exposure to penalties.
