Tax return - Introduction

A tax return generally define as a documents that can be filed with a government body declaring liability for taxation [Wikipedia]

In Malaysia, tax return being one of the significant milestone for every tax payer on each year of assessment. Government body tax in charge of Malaysian tax return is Inland Revenue Board (Lembaga Hasil Dalam Negeri) .

Income of any person [legalized person] including a company, accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to income tax. The law governing income taxation is the Income Tax Act 1967 (ITA 1967 Act53). A transaction must fall within the ambit of ‘scope of charge’ as provided in Section 3 of the Act in order to be liable to income tax. Income tax in Malaysia is imposed on income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.

Section 3. Charge of income tax.

“Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”

 Therefore, income tax liability arises when: 

i. the transaction is ‘income’ in nature and such income is accrued in or derived from Malaysia; or
ii. the transaction is ‘income’ in nature and it is received in Malaysia from outside Malaysia.

Income tax would be imposed by reference to a YA upon a person’s income. Such person is known as chargeable person.
However, income received in Malaysia by any person other than a resident company carrying on business of banking, insurance or sea or air transport for a year of assessment derived from sources outside Malaysia is exempted from tax. 

Whereby, Capital gain[N1] is not subject to income tax charge in Malaysia, only Revenue[N2] is subject to tax.

N1: Capital gain is a profit that results from investments into a capital assets, such as stocks, bonds or real estate, which exceeds the purchase price.

N2: Revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers.

Income vs. Capital receipts