Rental Income Tax in Malaysia: Guide for Property Owners

Rental income tax in Malaysia is the tax you pay on money earned from renting out property, whether residential or commercial. It applies to both residents and non-residents once the property starts generating rent, and it must be declared annually to LHDN through the MyTax system.

Thinking your side income from that spare condo “doesn’t count”? LHDN thinks otherwise. 

Whether it’s a Klang Valley apartment near a university or a Penang shop lot, your rental earnings are part of your taxable income, and skipping it could cost you more than a late rent payment.

This guide explains how rental income tax works in Malaysia, which expenses you can deduct, and how to file correctly in 2025 without confusing tax jargon.

What Is Rental Income Tax in Malaysia?

Rental income tax refers to the tax you pay on money earned from renting out property within Malaysia.

It covers both residential and commercial properties and applies once you start receiving rental payments.

LHDN treats rental income as part of your overall taxable income, just like salary, dividends, or business profits. How it is taxed depends on the level of activity involved in managing your property.

In simple terms:

• Any income earned from letting property in Malaysia is taxable under the Income Tax Act 1967.
• It applies to houses, apartments, shop lots, office spaces, and even rooms rented for profit.
• The income can fall under two categories:
  • Business income (Section 4(a)), if you actively manage, maintain, or provide services as part of the rental.
  • Passive income (Section 4(d)), if you only collect rent without running it like a business.
• The classification determines how your income is reported, which deductions you can claim, and which LHDN form to use.

This distinction is crucial because it affects how much tax you pay and what expenses you can legally deduct.

How Much Rental Income Is Taxed in Malaysia?

For Malaysian residents, rental income is added to your total taxable income and taxed at progressive rates:

For non-residents, rental income is taxed at a flat 30 % rate, with no personal reliefs.

Source: PWC

What Expenses Can You Deduct from Rental Income?

You are taxed only on your net rental income, meaning the total rent received minus allowable expenses.

Below are typical deductible costs accepted by LHDN:

Non-deductible costs include:

• Initial legal fees or stamp duty for the first tenancy agreement.
• Renovations or improvements (these are capital expenses).
  Advertising costs to find your first tenant.
  
  

Our recommendation: Keep all receipts, invoices, and tenancy agreements for at least seven years. LHDN may request them during an audit.

Do You Need to Pay Service Tax on Rental?

Residential property rentals remain exempt from service tax.

However, from 1 July 2025, the 8 % service tax will apply to certain commercial rental or leasing services under Malaysia’s revised SST framework.

For rental/leasing services, the SST registration threshold is RM1,000,000 taxable turnover over 12 months (replacing RM500,000). Check your turnover and activities to see if registration applies to you.

✅ You may need to charge or pay service tax if you:

• Lease or rent out commercial properties, such as office spaces, retail shops, warehouses, or industrial lots.
• Operate the rental under a registered company or business entity that is SST-registered (annual taxable turnover exceeding RM500,000).
• Provide value-added services along with the lease, such as facility management, storage, or equipment rental.
• Rent properties as part of a property management or leasing business rather than as an individual landlord.

❌ You are exempt from service tax if you:

• Rent out residential properties (condos, terrace houses, apartments, rooms) for long-term stays.
• Own the property as an individual without crossing the SST registration threshold.
• Let property informally renting one room in your home) without operating as a business.

In short:

If you are an individual landlord renting out residential property, you do not need to charge or pay the 8 % service tax.

You may be affected if you let commercial spaces as part of a business and your annual rental turnover exceeds RM1,000,000 (you must register and charge SST at 8% on taxable rental services).

When Do You Start Paying Tax on Rental Income?

You start being taxable once your property begins earning rent.

The income is declared on a receipt basis, meaning it is counted when you actually receive the rent, not when it is due.

Example: If your tenant’s January rent is only paid in February, the income is recorded in February’s tax year.

How Do You Declare Rental Income to LHDN?

Declaring rental income in Malaysia is straightforward once you understand which form applies to you and how to report it through the LHDN MyTax e-Filing portal.

The process differs slightly depending on whether your rental income is treated as passive (Section 4(d)) or business income (Section 4(a)), but for most individual landlords, it falls under the passive category.

Step-by-Step: For Individuals Without Business Registration (Passive Rental Income)

1. Log in to MyTax Portal (LHDN).
   
   
   • Use your registered MyKad or digital certificate to sign in.
   • If you have never filed before, register for an income tax number via the e-Daftar option first.
     
     
2. Navigate to e-Filing → e-Borang → Form BE (Resident Individual).
   
   
   • This form is for individuals who earn non-business income such as salary, commission, or rent.
     
     
3. Go to the “Statutory Income” section and select “Rents.”
   
   
   • Enter your net rental income (after allowable expenses like quit rent, loan interest, and repairs).
   • If you own multiple properties, sum up the total net rental amount for the year.
     
     
4. Upload or keep supporting documents.
   
   
   • Keep digital or scanned copies of:
     
     
     • Tenancy agreements (stamped via STAMPS Portal)
     • Receipts for expenses and repairs
     • Bank statements showing rent received
       
       
   • LHDN usually does not require uploads unless you are selected for audit, but it is best to be prepared.
     
     
5. Review your total chargeable income.
   
   
   • The system automatically adds your rental income to other income sources (salary, dividends, etc.).
     
     
   • Double-check that deductions (personal tax reliefs, Zakat, insurance) are correctly reflected.
     
     
6. Submit before the annual deadline.
   
   
   • Deadline for Form BE: 30 April (manual) or 15 May (e-Filing).
   • Late submissions may trigger automatic penalties and interest charges.

If Your Rental Is Classified as Business Income

• Use Form B instead of Form BE.
• This applies if you run rentals as a business (short-term stays, managed units, multiple properties with active maintenance).
• You can then deduct additional business-related costs such as staff wages, advertising, and management fees.

Penalties for Late or Incorrect Filing

Under Section 113 of the Income Tax Act 1967, you may face:

• A fine of RM1,000–RM20,000
• Imprisonment up to 3 years, or both
• Additional penalty up to 300% of the tax undercharged 

Source: Lembaga Hasil Dalam Negeri (LHDN) Malaysia – MyTax Official Portal, Income Tax Act 1967 (Sections 4, 77, 113).

Example: How Rental Tax Works in Practice

Suppose you earn RM 3,000 per month renting a condo (RM 36,000 a year).
Your yearly expenses include:

Net taxable rental income = RM 36,000 – RM 10,800 = RM 25,200.

This RM 25,200 is then added to your other income (salary etc.) and taxed according to your bracket.

Additional Advice for Property Owners

• Register a simple rental ledger (Excel or Google Sheet) tracking rent, dates, and expenses.
• Issue official receipts for tenant payments.
• Renew tenancy agreements properly and pay the stamp duty through LHDN’s STAMPS portal.
• If you hire an agent or management company, request a yearly rental statement for your records.
• Check whether your rental activity requires business registration under SSM if it expands beyond one or two properties. 

Conclusion: Understanding Rental Income Tax Is Good Business

Rental income tax in Malaysia is straightforward once you know how LHDN classifies your earnings and what expenses you can claim.

With accurate records, timely filing, and awareness of upcoming SST changes, you can maximise your deductions and stay compliant.

If managing rental records, deductions, and tax filings feels overwhelming, Accounting.my can help simplify the process.

Our tax services cover everything from LHDN compliance and e-Filing preparation to expense tracking and audit support.

With professional guidance, you can focus on growing your investments while we handle the paperwork and compliance.

Source:

• LHDN Public Ruling No. 12/2018 – Income From Letting of Real Property (19 Dec 2018) — s.4(a) vs s.4(d)
• LHDN – RF Filing Programme 2025 (30 Dec 2024) — Form BE/B due dates (BE: 30 Apr 2025
• PwC Malaysia – Personal Income Tax (YA 2024 / YA 2025) (2024–2025 booklet, page updated 2025) 
• Royal Malaysian Customs (MySST) – Guide on Rental or Leasing Services (PDF, 9 Jun 2025) — SST scope from 1 Jul 2025
• MoF Press Release – “Revision to the Expanded Sales Tax and Service Tax…” (28 Jun 2025)