Malaysia Budget 2025 Tax Relief Amendments: Ensuring Payroll Compliance with New Sub-Limits

Yesterday, I received an email from LHDN for all software providers to get their payroll software ready for changes which are coming effective January 1st 2025.

The changes being effected are as follows :-

1. Medical Treatment Expenses: Expanded Sub-Limits for Diagnostic and Self-Test Equipment ??

Current Provision: Up to RM10,000 tax relief on medical treatment, covering various expenses such as serious illness, fertility treatments, dental treatments, and mental health consultations.

Budget 2025 Update:

• Full Medical Checkups and Diagnostic Tests: RM1,000 cap remains, but has expanded to include self-diagnostic equipment. Here’s the breakdown:Self-Test Kits (e.g., COVID-19, influenza): Allowable under the RM1,000 cap.Medical Devices (e.g., glucometer, blood pressure monitor, pulse oximeter): Included under the same RM1,000 limit.Routine Diagnostic Screenings (e.g., blood tests, mammograms, ultrasounds): Also fall under the RM1,000 sub-limit.

?? Compliance Note: Ensure your payroll software calculates these medical reliefs accurately by distinguishing these items and verifying that expenses do not exceed the RM1,000 combined limit for diagnostic tests and devices. Regular employee declarations and documentation validation will be essential.

2. Lifestyle Relief for Sports & Physical Activities: Including Parents ??

Current Provision: RM1,000 relief for sports equipment, gym memberships, and sports competition fees, applicable to the taxpayer, spouse, or children.

Budget 2025 Update:

• This category now includes expenses incurred by parents of the taxpayer.
• Sub-limits remain: While the RM1,000 overall cap remains, the scope now extends to costs related to parents’ participation.

?? Compliance Note: HRMS solutions should expand employee self-service options to allow employees to submit receipts and claims for their parents. System changes may be required to ensure proper validation and allocation of this relief to different family members.

3. Medical Treatment Expenses for Parents and Grandparents: Adding Vaccination Coverage ??

Current Provision: Up to RM8,000 relief for parents’ medical expenses, including dental and medical exams.

Budget 2025 Update:

• Expansion to cover grandparents.
• Includes vaccination costs under the RM8,000 cap, which was previously excluded.

?? Compliance Note: Systems should enable distinct tracking for expenses related to parents and grandparents, with vaccination expenses identified separately. Updates to payroll reports may also be needed to account for the higher relief cap and additional family members.

4. Extended Childcare Relief ??

Current Provision: RM3,000 relief for childcare fees for children under six.

Budget 2025 Update: Relief extended until 2027.

?? Compliance Note: While this relief hasn’t changed in scope or amount, systems should ensure that the relief continues to be applied through the extended period. Verifying childcare providers’ registration status will remain essential.

5. SSPN Savings for Education: Conditions for Net Savings Calculations ??

Current Provision: Up to RM8,000 relief on net SSPN savings for children’s education.

Budget 2025 Update:

• Extended to 2027, with new conditions that only net deposits (excluding withdrawals for education expenses) qualify for the RM8,000 relief.

?? Compliance Note: HR systems must account for net deposits by considering withdrawals made specifically for educational expenses. This may require integrating with SSPN accounts or obtaining employee declarations to confirm net deposits, ensuring accurate calculations.

6. Private Retirement Scheme (PRS) Contribution Relief Extended to 2030 ??

Current Provision: RM3,000 for PRS contributions, expiring in 2025.

Budget 2025 Update: Relief extended to 2030, encouraging long-term retirement savings.

?? Compliance Note: This straightforward extension requires tracking PRS contributions within the relief window. Employee contribution reports should clearly reflect the PRS amounts for compliance verification.

7. Enhanced Relief for Education & Medical Insurance Premiums ??

Current Provision: RM3,000 relief on education and medical insurance premiums.

Budget 2025 Update: Increased to RM4,000.

?? Compliance Note: Systems should update premium deduction caps for this category to the new RM4,000 limit, ensuring employees maximize their entitled relief.

8. Expanded EV and Food Waste Machine Relief ??

Current Provision: RM2,500 relief on EV charger installation, rentals, or subscriptions.

Budget 2025 Update:

• Now includes food waste composting machines for household use, claimable once every three years.

?? Compliance Note: Payroll systems must identify food waste composting machine purchases as eligible under the RM2,500 limit. Set reminders or tracking features to manage the three-year claim frequency for these machines, preventing double-claiming within that period.

9. First Home Loan Interest Relief Reinstated for First-Time Buyers ??

Current Provision: RM10,000 relief for homes purchased between 2009-2010.

Budget 2025 Update:

• New relief of RM7,000 (homes ≤ RM500,000) and RM5,000 (homes RM500,001-750,000).
• Applicable to homes purchased from 2025-2027, and claimable by multiple individuals for a shared property.

?? Compliance Note: Systems must recognize first-time home purchases within this price range and apply appropriate relief limits based on property value. Shared claims need clear documentation on interest payment distribution among co-owners.

10. Increased Relief for Persons with Disabilities ?

Current Provision: RM6,000 (individuals), RM5,000 (disabled spouse), RM6,000 (disabled unmarried children).

Budget 2025 Update: Relief caps increase to RM7,000 (individuals), RM6,000 (disabled spouse), and RM8,000 (disabled unmarried children).

?? Compliance Note: Adjust payroll systems to reflect the new limits and ensure accurate allocation of disability-related relief. Update reporting to capture these increases effectively for employee documentation.

The Path Forward: Ensuring Compliance Through Detailed Implementation

With these amendments, HR professionals and payroll system vendors have a clear roadmap for aligning payroll processing with Budget 2025. By focusing on sub-limits and eligibility extensions, we can help employees fully utilize these benefits without compliance issues. Leveraging technology and detailed record-keeping, we ensure that employees benefit from these tax reliefs while maintaining rigorous adherence to updated LHDN guidelines.

A Disclaimer about implementation

As usual this is a preliminary communication from LHDN for systems readiness. The actual change will only take place once the Income Tax Act has been gazetted.

A Summary Table.

Here is a table summarising the changes and possible proposed system changes.

TP1 and TP3 formats are also changing for MTD 2025 to cater for these MTD changes

Before I forget, let me remind us that the TP1 and TP3 forms format are also being changed to cater for the changes to MTD2025. Please bear these in mind especially if the forms are provided via Employee Self Service and web forms in your HRMS. Please ensure that these too are maintained and modified in the systems.

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