Initial Allowance Claim 2026: First-Year Tax Benefit

What is Initial Allowance?

Initial allowance is a special tax deduction. You claim it in the first year you buy equipment. It's a big deduction that lowers your taxable income immediately.

The standard rate is 20%. Some equipment qualifies for 40% accelerated allowance.

How Much Can You Claim?

Standard Rate: 20% of equipment cost

Accelerated Rate: 40% for qualifying assets

Examples:

• RM100,000 Excavator: RM40,000 initial allowance (40%)
• RM80,000 Forklift: RM32,000 initial allowance (40%)
• RM60,000 Lorry: RM24,000 initial allowance (40%)
• RM40,000 Crane: RM16,000 initial allowance (40%)

Bank vs. Ing Heng: Same Deduction, Better Cash Flow

Factor	Bank	Ing Heng Credit
Down Payment	10-20%	0%
Initial Allowance	Same	Same
Cash Flow	Reduced	Preserved
Equipment Age	5 years max	NO Age Limit

Used Equipment Gets Initial Allowance Too

Used equipment also qualifies for initial allowance. The percentage applies to the purchase price:

• Used Komatsu Excavator (RM50,000): RM20,000 initial allowance
• Used CAT Excavator (RM70,000): RM28,000 initial allowance
• Used Forklift (RM18,000): RM7,200 initial allowance

Banks Reject: Only finance equipment up to 5 years old.

Ing Heng Accepts: Any age equipment. Get initial allowance on affordable used machines.

When to Claim Initial Allowance

Claim initial allowance in the tax year you:

• Buy the equipment
• Start using it for business
• Install it at your workplace

Timing Tip: Buy in January. Get full year of benefits. Buy in December. Still get full Year 1 allowance.

How to Claim Initial Allowance

Step 1: Keep Your Documents

• Purchase invoice with date and amount
• Delivery note showing when received
• Payment proof (bank receipt, loan agreement)

Step 2: Calculate the Amount

Equipment cost × 40% = Initial allowance

Example: RM90,000 Excavator
RM90,000 × 40% = RM36,000 initial allowance

Step 3: File Your Tax Return

• Report the equipment purchase in your tax return
• Claim initial allowance in the appropriate section
• Attach supporting documents if requested

Initial Allowance + Interest Deduction

When you finance equipment, you get double tax benefits:

Initial Allowance: 40% of equipment cost

Interest Deduction: 100% of interest paid

Example: RM100,000 Excavator with Loan
• Initial allowance: RM40,000
• Year 1 interest: ~RM6,000
Total Year 1 Deduction: RM46,000

Multiple Equipment: Each Gets Initial Allowance

If you buy multiple equipment, each gets its own initial allowance:

• Excavator (RM100,000): RM40,000 initial allowance
• Forklift (RM40,000): RM16,000 initial allowance
• Lorry (RM60,000): RM24,000 initial allowance

Total Year 1 Deduction: RM80,000

0% Down Payment Advantage

With 0% down payment:

• Same initial allowance as cash purchase
• No upfront payment required
• Cash preserved for operations
• More loan amount means more interest to deduct

Example: RM120,000 Excavator
• Bank (10% down): RM12,000 upfront
• Ing Heng (0% down): RM0 upfront, RM12,000 saved

Initial Allowance for 2026

Plan your 2026 equipment purchases:

1. Buy in January: Full year of deductions
2. Use 0% down: Preserve cash flow
3. Consider used: Lower cost, same allowance rate
4. Finance multiple: Each equipment gets separate allowance
5. Keep records: Document everything for LHDN

Real Tax Savings

"Bought RM150,000 excavator in January 2026 with 0% down payment. Claimed RM60,000 initial allowance. Taxable income reduced by RM60,000. At 24% tax rate, saved RM14,400 in taxes. Also deducted interest from loan payments. Total tax savings over RM20,000 in Year 1. Cash flow stayed strong because no down payment. Best tax planning move ever."

— Lim Wei Ming, Contractor

Claim Your Initial Allowance in 2026

Initial allowance reduces your tax bill immediately. 0% down payment preserves your cash. 100% full loan maximizes your deduction. NO age limit means used equipment qualifies too.

We approve in 24-48 hours. Buy equipment and claim your initial allowance today.