Budget 2025 - Personal Income tax YA2025

Prime Minister Dato’ Seri Anwar Ibrahim has tabled Budget 2025 with a record allocation of RM421 billion, making it the largest budget in Malaysia's history. This marks the third “Belanjawan MADANI”, focusing on three key areas:

Boosting the economy.

Driving change.

Improving the well-being of the rakyat.

As always, the budget includes various tax-related updates and incentives for individuals and businesses. Here, we’ve summarized the important tax highlights for individuals in Budget 2025 to help you understand what’s new and how it may impact you.

Would you like details on specific tax incentives or reliefs announced? Let me know.

The MADANI government aims to increase tax revenue in a fair manner, ensuring that the majority of Malaysians are not overburdened. A key measure introduced in Budget 2025 is the new 2% tax on annual dividend income exceeding RM100,000.

Who Will Be Affected?

• This tax targets individuals with substantial shareholdings, typically those earning over RM100,000 annually from dividends.
• It is designed to broaden the tax base, especially for individuals who do not rely on salaries but earn significant income through investments.

What Is Exempt?

Certain types of dividend income will not be taxed under this new rule, as stated in the Budget 2025 appendices:

1. Dividends from government savings like EPF and PNB-managed funds (e.g., Amanah Saham Bumiputera [ASB] and Amanah Saham Malaysia).
2. Unit trust fund dividends are also excluded.
3. Overseas dividend income, which is often already taxed in the source country, will not be subject to this tax.

Why Was It Introduced?

Prime Minister Dato’ Seri Anwar Ibrahim emphasized that this measure primarily targets high-net-worth individuals and is not meant to impact ordinary Malaysians. It ensures that the tax system remains progressive while diversifying the government's revenue sources.

This new tax is part of a larger effort to ensure fairness in taxation while safeguarding lower and middle-income groups.

Good news for taxpayers! Budget 2025 introduces an increase in tax relief for medical and education insurance premiums. The relief will be raised from RM3,000 to RM4,000, starting from Year of Assessment (YA) 2025.

What Does This Mean?

• Taxpayers can now claim an additional RM1,000 in relief for their medical and education insurance payments.
• This change is likely aimed at encouraging more Malaysians to purchase medical insurance, especially since an estimated 42% of Malaysians are currently uninsured.

Why Is This Important?

• Medical insurance premiums have risen significantly in recent years, making it challenging for many to maintain coverage.
• The increased relief provides a financial incentive for policyholders to retain or upgrade their medical insurance policies.

This initiative is part of the government’s effort to enhance healthcare accessibility and promote financial planning for education and medical needs among Malaysians. Further details are expected as we approach the implementation date.

Make sure to plan your taxes wisely to take full advantage of this increased relief!

he rising costs of healthcare have once again prompted enhancements to medical tax relief under Budget 2025, continuing the trend seen in previous budgets. Here’s a breakdown of the changes:

Key Expansions in Coverage

The RM1,000 limited relief for full medical check-ups, health check-ups, and related expenses now includes:

1. Full Medical Check-Ups: Comprehensive health evaluations to detect potential illnesses early.
2. Mental Health Check-Ups or Consultations: Counseling or mental health support sessions with professionals.
3. Self-Test Kits:
   • Covid-19 and influenza test kits.
   • Other medical self-test devices like glucometers, pulse oximeters, blood pressure monitors, and thermometers.
4. Disease Detection Examinations:
   • Fees for blood tests, ultrasounds, mammograms, pap smears, and similar diagnostic tests conducted at clinics or hospitals.

Co-Payment Medical Insurance Relief

A new addition allows medical insurance policyholders who have opted for co-payment plans (where policyholders share a portion of medical costs) to claim tax relief for the portion of expenses borne by the individual.

Who Can Claim This Relief?

• Yourself
• Your Spouse
• Your Child

This marks the third consecutive year of enhancements to medical tax relief, following:

• Budget 2023: Relief increased from RM8,000 to RM10,000.
• Budget 2024: Inclusion of dental examination and treatment expenses (up to RM1,000).

These updates reflect the government’s commitment to helping Malaysians cope with rising healthcare expenses and improving access to preventive and diagnostic healthcare services.

Take note of these updates to maximize your tax savings for YA 2025!

A favourite among taxpayers and a potential omission in Budget 2024 that saw public outcry, the RM8,000 tax relief for SSPN net savings for the individual’s children has been extended for another three years.

Another taxpayer favourite, any concerns about PRS tax reliefs being removed have been cleared for the next six years of assessment. This relief, which covers deferred annuity payments and deposits made to Private Retirement Schemes (PRS), covers up to RM3,000.

To encourage first-time home ownerships and increase disposable income, the government has proposed up to RM7,000 in tax relief on mortgage interest payments per year, for YA 2025-2027. The claimable amount is broken down as follows:

• Up to RM7,000 for properties priced up to RM500,000
• Up to RM5,000 for properties priced between RM500,000 to RM750,000

It is also important to note that this is only applicable to properties whose sales and purchase agreements are executed from 1 January 2025 to 31 December 2027, and that the property is not used to generate any income.

Enhanced tax relief for disabled individuals

In an effort to ease the burden of disabled individuals, the proposed tax relief for the disabled has been enhanced as follows:

• Increased tax relief from RM6,000 to RM7,000 for disabled individual taxpayer
• Increased tax relief from RM5,000 to RM6,000 for an individual taxpayer with a disabled spouse
• Increased tax relief from RM6,000 to RM8,000 for an individual taxpayer with unmarried disabled children