Author : Akmal Razman
Every employer in Malaysia must deduct monthly tax from employee salaries and pay it to LHDN, following this MTD guide Malaysia employers rely on to stay compliant. This deduction is called PCB, short for Potongan Cukai Bulanan. In English, people call it MTD, or Monthly Tax Deduction. Getting PCB wrong causes real problems. Deduct too little and your company faces penalties. Deduct too much and employees will complain about smaller pay. This guide covers what MTD is, how to calculate it, and what employers must do to stay compliant, plus how SunFish HR by DataOn Malaysia makes the process easier.
What is MTD (PCB)
PCB, or MTD, spreads an employee’s yearly income tax across twelve monthly payments instead of one lump sum. Employers deduct the amount from salary each month and remit it to LHDN. Employees pay tax gradually this way. LHDN also collects revenue more consistently throughout the year.
Which types of income are subject to MTD
Most forms of employment income count towards PCB. This includes basic salary, overtime pay, commissions, bonuses, directors’ fees, and service charges. Some allowances and benefits in kind carry a tax exemption, either in full or up to a yearly cap, so employers should leave these out of the MTD calculation. Taxable benefits in kind, such as a company car or provided housing, still need to be added to monthly taxable income even when no cash changes hands. PCB calculation runs on gross taxable pay, so changes to an employee’s base salary, such as those tied to the minimum salary requirements in Malaysia, also affect the monthly deduction amount.
PCB only applies once an employee’s annual chargeable income, after EPF relief and personal reliefs, crosses the lowest tax bracket threshold. Employees below that threshold have no PCB deducted, though employers should still track their income in case a bonus or salary increase pushes them over it during the year.
How employers calculate PCB
Employers can work out MTD in three ways.
- The PCB table gives a simplified reference showing the deduction owed for each salary bracket, adjusted for spouse and child reliefs. LHDN stopped publishing this table after 2019, though it remains accessible through the e-CP39 portal.
- The LHDN calculator, also used within the e-PCB portal, applies a formula based on the employee’s actual income and deductions from earlier months in the year to work out the correct monthly deduction.
- Payroll software such as SunFish HR applies the same underlying formula automatically once employee salary and personal details are entered. This removes the manual calculation work entirely.
PCB tax brackets
The formula in the next section draws its rate and rebate from a bracket table based on annual chargeable income. This is the same table behind LHDN’s computerised calculation.
| Chargeable income P (RM) | Threshold M (RM) | Rate R | Rebate B, category 1 and 3 (RM) | Rebate B, category 2 (RM) |
|---|---|---|---|---|
| 5,001 to 20,000 | 5,000 | 1% | minus 400 | minus 800 |
| 20,001 to 35,000 | 20,000 | 3% | minus 250 | minus 650 |
| 35,001 to 50,000 | 35,000 | 6% | 600 | 600 |
| 50,001 to 70,000 | 50,000 | 11% | 1,500 | 1,500 |
| 70,001 to 100,000 | 70,000 | 19% | 3,700 | 3,700 |
| 100,001 to 400,000 | 100,000 | 25% | 9,400 | 9,400 |
| 400,001 to 600,000 | 400,000 | 26% | 84,400 | 84,400 |
| 600,001 to 2,000,000 | 600,000 | 28% | 136,400 | 136,400 |
| Exceeding 2,000,000 | 2,000,000 | 30% | 528,400 | 528,400 |
Category 1 covers single employees, category 2 covers married employees whose spouse has no income or does not opt to combine assessment, and category 3 covers married employees whose spouse also has income.
How the MTD formula works
The calculation, simplified, follows these steps:
- Add up the employee’s taxable income for the year so far. This factors in recurring and one-off amounts for the current month, plus projected recurring income for the months left in the year.
- Subtract eligible tax deductions to get the annual chargeable income.
- Apply the tax rate to that chargeable income to get the annual tax payable.
- Subtract PCB already paid, then divide by the number of months remaining to get that month’s deduction amount.
LHDN expresses this as a formula. Employers using payroll software will not need to calculate it by hand, but knowing the mechanics helps when checking figures or explaining a deduction to an employee.
- MTD (current month) = [(P − M) × R + B] − (Z + X) / (n + 1)
- Net MTD = MTD (current month) − Z (current month)
| Symbol | What it represents |
|---|---|
| P | Total chargeable income for the year, after EPF and eligible reliefs |
| M | The income threshold for the employee’s tax bracket |
| R | The tax rate for that bracket |
| B | Cumulative tax charged on income below that bracket |
| Z | Zakat already paid earlier in the year |
| X | PCB already deducted earlier in the year, including from a previous employer |
| n | Number of months left in the year after the current month |
A simplified example
Take a single employee earning RM5,000 a month, contributing the standard 11% employee EPF rate, with no other reliefs beyond the personal relief.
- Annual salary: RM60,000
- EPF relief, capped: RM4,000
- Personal relief: RM9,000
- Chargeable income P: RM47,000
- Bracket: RM35,001 to RM50,000, so M is RM35,000, R is 6%, B is RM600
- Annual tax: (RM47,000 minus RM35,000) × 6% + RM600, which comes to RM1,320
- Spread evenly across 12 months: RM1,320 divided by 12, which comes to RM110 a month
This is a simplified version using an even annual split. The actual computerised method recalculates P using year to date income each month, so the figure can shift slightly month to month as pay, reliefs, or bonuses change.
Additional remuneration and bonus PCB
Bonuses, once off allowances, and other irregular payments do not follow the normal remuneration formula above. LHDN calculates PCB on additional remuneration separately, by working out the total tax due for the year with the bonus included, subtracting the tax already calculated on normal remuneration and any PCB already paid, and treating the difference as the PCB owed on that additional payment. This is why a large bonus can trigger a noticeably bigger deduction in that one month rather than being spread out. Payroll software applies this calculation automatically, but it is worth explaining to employees so a bigger than usual deduction on bonus month does not come as a surprise.
Non resident employees
Employees who do not meet the 182 day residency test are taxed differently from residents. Non resident employees are subject to a flat PCB rate rather than the progressive bracket table, regardless of income level, and they do not receive the personal or spouse reliefs available to residents. Employers with foreign staff, secondees, or short term assignees in Malaysia should confirm residency status early, since applying the resident formula to a non resident employee results in an incorrect deduction.
Common PCB mistakes employers make
Even with the right tools, employers still run into avoidable errors. Forgetting to update an employee’s tax reliefs mid-year, such as a new child or marriage, leads to incorrect deductions. Miscalculating benefits in kind, especially company cars or accommodation, is another common slip, since these need adding to taxable income even without any cash payment. Some employers also delay remitting PCB past the 15th of the following month, which triggers penalties even if the deduction itself was correct. SunFish HR reduces these risks by capturing salary changes, reliefs, and benefits in kind in one system and reflecting them automatically in the next PCB calculation.
Registering as an employer with LHDN
Any business with employees needs an employer tax file with LHDN, identified by an E number. This registration is required for paying PCB and for filing the annual Form E. Employers can register online through e-Daftar on the MyTax portal, and LHDN typically issues an E number within three to five working days.
Submitting and paying PCB
Employers can submit PCB through e-CP39 for manual or one-off submissions, e-PCB for ongoing manual submissions with saved records, or e-Data PCB for uploading a file generated directly by payroll software, which skips manual data entry entirely.
Payment can go through FPX online via supported banks, CIMB cheque deposit kiosks, or cash at POS Malaysia counters. Payroll software users can also submit and pay PCB through their bank’s portal instead of going through e-Data PCB.
Notifying LHDN when employees join or leave
Employers use Form CP22 to notify LHDN of a new employee, submitted within 30 days of their start date. When an employee’s service ends and tax clearance applies, Form CP22A covers this, submitted at least 30 days before the employee leaves. Employees departing Malaysia for more than three months fall under Form CP21, which also needs submission 30 days ahead. Employers hold back any final payments to the employee in both CP22A and CP21 cases, until tax clearance is granted or for 90 days, whichever comes first.
Employer responsibilities under LHDN
Employers need to register for an E number and collect Form TP3 from new hires to capture income from previous employers in the same year. They must also let employees claim reliefs like zakat via Form TP1. For 2026, LHDN also expanded the vaccination expense relief under TP1 to cover all vaccines approved by the National Pharmaceutical Regulatory Agency, so employers should use the updated TP1(2026) and TP3(2026) forms when processing employee reliefs. Employers deduct and remit MTD by the 15th of the following month, file Form E and CP8D by 30 April for online submissions, and issue Form EA to employees by the end of February.
They also need to submit CP22, CP22A, and CP21 as required, withhold payments during tax clearance where applicable, and keep records for seven years. Alongside PCB, employers must also stay on top of other statutory contributions such as SOCSO, which covers employees for workplace injury and other protections.
Forms and deadlines at a glance
| Form | Purpose | Deadline |
|---|---|---|
| TP1 | Employee claims reliefs such as zakat | Submitted by employee during the year |
| TP3 | Declares income from a previous employer | Collected from new hires at onboarding |
| CP22 | Notifies LHDN of a new employee | Within 30 days of start date |
| CP22A | Notifies LHDN of an employee leaving with tax clearance | At least 30 days before departure |
| CP21 | Notifies LHDN of an employee leaving Malaysia for over 3 months | At least 30 days before departure |
| CP8D | Statement of employee remuneration | By 30 April, alongside Form E |
| Form E | Employer’s annual return | By 30 April for online submissions |
| Form EA | Statement of remuneration issued to each employee | By end of February |
Penalties for non-compliance
The Income Tax Act 1967 sets out several penalties. Failing to file a return or notify chargeability without valid reason can bring a fine of RM200 to RM20,000, up to six months imprisonment, or both. Filing incorrect returns can lead to fines of RM1,000 to RM10,000, plus a penalty of double the undercharged tax. Wilful tax evasion, such as hiding income or submitting false information, carries fines of RM1,000 to RM20,000, up to three years imprisonment, or both, along with a penalty of triple the undercharged amount.
PCB and year-end tax reconciliation
PCB is only an estimate based on the employee’s income pattern, not always the final tax figure. Employees file their personal tax return at year end and compare total PCB paid against actual tax owed. A refund from LHDN follows if too much was deducted. The employee pays the difference if too little was deducted. Accurate monthly PCB calculation matters throughout the year for this reason, since large gaps between PCB paid and actual tax owed create cash flow surprises for employees at filing time. SunFish HR’s payroll reports give employees a clear breakdown of their PCB history, making year-end reconciliation easier for both employer and employee.
How SunFish HR by DataOn Helps With PCB Compliance
PCB compliance gets harder to manage by hand as a company grows. Tracking salary brackets, reliefs, TP1 and TP3 forms, and submission deadlines across a growing headcount is easy to get wrong. SunFish HR by DataOn’s payroll module automates PCB calculation using the same formula LHDN applies, updates deductions automatically when salary or reliefs change, and generates the files needed for submission through e-Data PCB.
SunFish HR connects payroll directly with attendance and leave data as part of DataOn Malaysia’s suite of HR solutions, so PCB is always calculated on accurate, up to date figures. HR teams cut the risk of non-compliance with SunFish HR by DataOn and get more time to focus on people instead of paperwork.
Media Contact Akmal Razman, Marketing Executive at SunFish HR Malaysia by Dataon.com | sunfish.malaysia@dataon.com
FAQs
- How much MTD is deducted from a RM5,000 salary in Malaysia?
For a single employee with standard EPF contributions and no extra reliefs, MTD works out to roughly RM110 a month. This comes from an annual chargeable income of about RM47,000 after EPF and personal relief, taxed at 6 percent with a RM600 base rebate, spread across 12 months. The exact figure shifts slightly month to month since LHDN recalculates based on year to date income.
- Is MTD the final tax an employee pays?
No. MTD is a monthly estimate, not a final settlement. Employees reconcile it against their actual tax owed when they file their annual return, and LHDN either refunds the overpaid amount or collects the shortfall. MTD only counts as final tax in narrow cases, mainly single employment with no other income or reliefs outside what the employer already accounts for.
- Do all employees in Malaysia pay MTD?
No. MTD only applies once annual chargeable income, after EPF and personal relief, crosses into a taxable bracket, currently above RM5,000 a year. Employees below that threshold have no MTD deducted, though a bonus or raise partway through the year can push them into it.
- Can an employee ask their employer to deduct extra MTD?
Yes. Employees can request a higher MTD deduction than the formula requires, usually to avoid a large tax bill at year end or to cover income the monthly calculation does not capture, such as rental income. The employer adds this on top of the standard calculation when submitting to LHDN.
- What is the penalty for an employer who pays MTD late?
Missing the 15th of the following month can bring a fine of RM200 to RM20,000, imprisonment up to 6 months, or both, separate from penalties for incorrect returns. If MTD is never deducted or never remitted, the amount becomes a debt owed to the government, and the employer can be pursued for it directly.
