What are the Section 1.6 permanent exemptions from Malaysia's LHDN e-invoicing mandate?
Effective: 2024-07-01 · Authority: Inland Revenue Board of Malaysia (IRBM/LHDN)
Section 1.6 of the LHDN e-Invoice Guidelines lists specific income and expense types that are permanently exempt from e-invoice generation requirements. Exempt categories include employment income, pensions, alimony, zakat, scholarships, specific dividend distributions, and (as of a July 2024 update) the contract value for buying and selling of exchange-traded securities or derivatives, and disposal of unlisted shares under certain conditions.
What categories are permanently exempt under Section 1.6?
Section 1.6 of the LHDN e-Invoice Guidelines permanently exempts: (1) employment income, including salaries, wages, allowances, and benefits-in-kind paid to employees; (2) pensions received by retired individuals; (3) alimony and maintenance payments; (4) zakat contributions paid to recognized Islamic religious bodies; (5) scholarships and educational grants; (6) specific distributions of dividends under conditions specified in the guidelines; (7) (added July 2024) contract value for buying and selling of securities or derivatives traded on a recognized exchange; and (8) (added July 2024) disposal of unlisted shares under certain specified conditions.
How do the Section 1.6 exemptions apply?
Section 1.6 exemptions apply automatically by transaction category. Businesses do not need to apply to LHDN for individual exemptions. However, businesses should document their basis for applying the exemption to each transaction type in their internal compliance records. For LHDN audit purposes, the documentation should demonstrate that the specific transaction falls within one of the enumerated Section 1.6 categories and not merely a characterization that resembles an exempt category.
Frequently Asked Questions
- If a transaction is exempt under Section 1.6, does the business need to do anything?
- No action is required with LHDN for Section 1.6 exempt transactions. However, businesses should maintain internal documentation of the exemption basis for each transaction type in their accounting records to support LHDN audit responses.
- Does the Section 1.6 exemption apply regardless of the business's revenue threshold?
- Yes. The Section 1.6 exemptions apply to the specified income and expense categories regardless of the business's annual turnover or which phase threshold applies. Even Phase 1 businesses (revenue over RM 100 million, mandatory since August 2024) are not required to generate e-invoices for transactions falling within the Section 1.6 exempt categories.
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