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Malaysia’s Double Tax Deduction for Senior Citizen Employees: Rules, Salary Cap & Calculation Examples
Malaysia’s Double Tax Deduction for Senior Citizen Employees: Rules, Salary Cap & Calculation Examples
Employers in Malaysia can claim double tax deductions when hiring senior citizens aged 60+. Learn eligibility rules, salary cap definitions, and calculation examples to maximize SME tax savings.
Malaysia’s Inland Revenue Board (LHDN) offers employers a double tax deduction for hiring senior citizens. This incentive reduces taxable income while promoting inclusive employment. But to benefit fully, SMEs must understand the salary cap rules and how remuneration is defined.
✅ Eligibility Criteria Recap
Age Requirement: Employee must be a Malaysian citizen and resident, aged 60+.
Employment Status: Must be a full-time employee.
Remuneration Cap: Monthly remuneration must not exceed RM4,000.
Relationship Rule: Employer and employee cannot be the same person or close relatives.
Documentation: Employers must maintain payroll records, contracts, and proof of age.
📅 Incentive Period
Current Period: YA 2019 – YA 2025.
Proposed Extension: Budget 2026 suggests extending to YA 2030.
💡 Salary Cap Rules Explained
Monthly Calculation: Eligibility is determined monthly. If remuneration exceeds RM4,000 in any month, no double deduction applies for that month.
Definition of Remuneration: Includes basic salary + allowances + bonuses + commissions + leave pay.
Example:
Basic salary = RM3,800
Allowance = RM500
Total = RM4,300 → ❌ No double deduction for that month.
Annual Cap: Maximum additional deduction = RM48,000 per employee per year (RM4,000 × 12 months).
Tax Year Validity: Rules apply through YA 2025 (with proposed extension).
📊 Calculation Example
Let’s say an SME hires a senior citizen full-time at RM3,500/month.
Monthly Remuneration: RM3,500 (eligible, under RM4,000 cap).
Annual Remuneration: RM3,500 × 12 = RM42,000.
Double Deduction Claim: RM42,000 × 2 = RM84,000 deductible against business income.
👉 This means the employer reduces taxable income by RM84,000, even though only RM42,000 was actually paid.
🎯 Why This Matters for SMEs
Tax Savings: Significant reduction in taxable income.
Inclusive Workforce: Encourages hiring experienced senior citizens.
Compliance-Friendly: Clear salary cap rules prevent misinterpretation.
📣 Call to Action
Employers should consult licensed tax agents, seek MLS assistance or visit the official LHDN website for forms and guidance. By hiring senior citizens, SMEs not only gain financial benefits but also strengthen Malaysia’s workforce inclusivity.
❓ Frequently Asked Questions (FAQs)
❓ Frequently Asked Questions (FAQs)
1. Can I claim the double deduction for the whole year if my employee turns 60 mid-year? Yes. According to LHDN guidelines, there is no requirement to prorate the deduction. As long as the employee reaches the age of 60 within the Year of Assessment (YA) and meets all other criteria (such as the RM4,000 salary cap), the employer can claim the double deduction for the remuneration paid throughout that entire year.
2. Is the RM4,000 monthly cap based on Gross Salary or Net (take-home) pay? The RM4,000 cap is based on Gross Monthly Remuneration. This includes the basic salary plus all taxable allowances, bonuses, and commissions before any deductions for EPF, SOCSO, or PCB (Income Tax). If the total amount payable by the employer exceeds RM4,000 in a specific month, that month will not qualify for the double deduction.
3. Are bonuses and commissions included in the RM4,000 monthly limit? Yes. "Remuneration" is defined broadly by the Inland Revenue Board (LHDN). It encompasses basic wages, overtime, commissions, bonuses, and even leave pay. For example, if an employee has a basic salary of RM3,500 but receives a RM1,000 bonus in December, the total for that month (RM4,500) will exceed the cap, making that specific month ineligible for the incentive.
4. Can I claim this deduction if I hire a family member (e.g., a parent or spouse)? No. To prevent abuse of the system, the law states that the double deduction is not available if the employer and employee are the same person or are "close relatives." This includes spouses, parents (including in-laws), children, siblings, and grandparents. The relationship must be at arm's length for the incentive to apply.
5. How long is this tax incentive valid? Under current rules, the incentive is available from YA 2019 through YA 2025. However, in the recent Budget 2026 announcement, the government proposed extending this double deduction for another five years, up to YA 2030, to further support Malaysia’s aging workforce.
✅ Checklist: Is Your Senior Citizen Hire Tax-Deductible?
Copy and paste this into your blog post to give your readers a quick way to verify their eligibility.
[ ] Citizenship: Is the employee a Malaysian citizen and resident?
[ ] Age: Has the employee reached age 60 (or will they during this Year of Assessment)?
[ ] Employment Type: Is the employee hired on a full-time basis?
[ ] Relationship: Is the employee someone other than yourself, your spouse, parent, child, or sibling? (Must not be a "close relative").
[ ] Monthly Cap: Is the total monthly remuneration (Basic + Allowances + Bonus) RM4,000 or less?
[ ] Documentation: Do you have a signed employment contract and a copy of their NRIC on file?
[ ] Payroll Records: Are you maintaining clear monthly payslips to prove the remuneration did not exceed the cap for each month claimed?
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