Budget 2027 Income Tax Changes: Who Saves and Pays More

The short answer: Budget 2027 proposes individual relief of RM12,000 for YA2027, together with lower rates in selected middle-income bands. Under the stated examples, RM100,000 of chargeable income saves RM840 a year, or RM70 a month, while RM2,500,000 pays RM18,300 more a year. These changes remain proposals until the Finance Bill 2027 passes.

The biggest practical change is not only the rate cut

Budget 2027 was tabled in Parliament on 9 October 2026. The proposed result comes from two changes working together:

• Individual relief rises from RM9,000 for YA2026 to RM12,000 for YA2027.
• Selected marginal rates fall, including the bands covering RM70,001 to RM100,000 and RM100,001 to RM150,000.

The higher relief reduces the chargeable income used in the YA2027 examples. The rate cuts then apply to that lower figure. This is why the benefit at RM100,000 is larger than a rate-only comparison might suggest.

The Ministry of Finance estimates the most extra disposable income at RM1,600. That is an estimate, not a fixed saving for every taxpayer. Your result depends on chargeable income, reliefs and rebates.

The examples use a resident individual with employment income. They assume only the individual relief and RM4,000 of EPF relief are claimed. Each starting figure is chargeable income on the YA2026 basis; the proposed YA2027 figure is shown separately after the higher individual relief.

YA2026 and proposed YA2027 rates side by side

These are marginal rates. Each rate applies to the portion within its band, not to the whole chargeable income.

The most relevant middle-income changes are the fall from 19% to 18% for RM70,001 to RM100,000, and from 25% to 24% for RM100,001 to RM150,000. The RM150,001 to RM400,000 band remains at 25%, so the proposal does not lower every rate.

At the top end, the 28% band ends at RM1,000,000 under the proposal. The 30% rate then applies above RM1,000,000. Under YA2026, the 30% rate applies only above RM2,000,000. That change can outweigh the higher relief for very high earners.

What the proposed tax looks like at common incomes

The following comparison uses the stated assumptions. The first column is the YA2026-basis chargeable income. The next column shows the lower proposed YA2027 chargeable income after the higher individual relief.

The saving increases from RM180 at RM40,000 to RM1,550 at RM300,000 in this set of examples. The increase is not proportional to income because the proposal changes particular bands while leaving other bands unchanged.

At RM150,000, the proposed saving is RM1,520 a year. At RM300,000, it is RM1,550 a year, a relatively small difference because the RM150,001 to RM400,000 band remains at 25%.

The RM2,500,000 example reverses the result. Its proposed chargeable income is RM2,497,000, but moving the 30% rate down to above RM1,000,000 creates more tax than the relief and rate reductions save. The supplied crossover estimate is RM1,085,000, where the saving turns into extra tax.

How the higher relief and lower rates work together

The proposed individual relief changes the chargeable-income base before the marginal rates are applied. For example, the RM100,000 YA2026-basis example uses proposed chargeable income of RM97,000. The proposed tax is RM8,560, compared with RM9,400 under YA2026.

This means you cannot estimate the full effect by looking only at the 19% and 18% bands. The relief change affects the amount reaching the bands as well. The examples therefore show both the YA2026-basis amount and the proposed YA2027 amount.

The RM400 rebate for chargeable income up to RM35,000 is unchanged by the proposals. The table does not add a separate rebate because its examples are above that threshold.

For your own estimate, separate gross employment income from chargeable income. Review the reliefs that apply to you, then compare the YA2026 and proposed YA2027 results using the same income basis. Do not treat gross salary as chargeable income without checking the deductions and relief assumptions.

Which tax year and payslip period changes

The YA2026 return filed in 2027 still uses the current rates and the RM9,000 individual relief. Budget 2027 does not change that return.

The proposals start with YA2027 income, meaning income earned in 2027. The related return is filed in 2028. Keeping these two filing years separate helps prevent the proposed RM12,000 relief from being used for the wrong year.

Monthly PCB on payslips changes only after LHDN publishes its 2027 deduction schedule. Until that schedule is published, your payslip may not show the proposed tax treatment. The annual and monthly changes in the table are comparison figures, not a promise about a particular PCB deduction.

A practical way to prepare is to keep documents for the YA2026 return separate from records for 2027 income. When the relevant schedule and final legislation are available, compare the PCB deduction with the completed tax estimate.

Other proposed relief changes to check

Budget 2027 also widens several relief categories without raising their caps. The proposed areas include:

• Postnatal care within the medical relief.
• All care costs for parents and grandparents.
• Any recognised course of study.
• AI subscriptions and pet costs under lifestyle.
• Sports shoes under the sports relief.

These wider categories are separate from the individual relief used in the examples. The examples also do not include these expenses or any additional reliefs.

For your records, identify which expense category you are relying on and retain the relevant documents. A wider category does not automatically produce a larger deduction for every person because the calculation still depends on the applicable relief and its cap.

Who benefits and who needs a closer check

Middle-income taxpayers are the clearest beneficiaries in the supplied examples. At RM100,000 of YA2026-basis chargeable income, the proposed saving is RM840 a year. At RM150,000, the saving is RM1,520 a year.

The benefit becomes less straightforward at very high chargeable incomes. Above RM1,000,000, the proposed 30% rate applies, while YA2026 applies 30% only above RM2,000,000. The RM2,500,000 example therefore shows RM18,300 of extra tax rather than a saving.

If your chargeable income is near RM70,001, RM100,001, RM150,001, RM600,001 or RM1,000,000, compare both sides of the relevant band. If it is near RM1,085,000, include the possibility that the proposed result may change from a saving to extra tax.

All figures remain educational estimates based on the stated assumptions. The tax measures become law only when the Finance Bill 2027 is passed, so use the final legislation and published deduction schedule when they become available.

Sources

• Ministry of Finance, Budget 2027 speech
• Ministry of Finance, Budget 2027 tax measures