PCB in Malaysia is a monthly income tax taken from an employee’s pay by THE employer to pay to THE Inland Revenue Board of Malaysia (LHDN). As part of payroll software Malaysia, it is one of THE most important legal obligations to perform. If you underpay you will incur penalties and if you overpay your employees will be unhappy. This guide goes through everything you need to know ABOUT PCB including how to calculate, submit and avoid errors.
What Is PCB in Malaysia? Potongan Cukai Bulanan
PCB stands for Potongan Cukai Bulanan which means Monthly Tax Deduction (MTD). This means that your employees will pay their income tax in installments throughout THE year. The employer will take THE PCB from your employee’s salary every month and send it to LHDN. PCB will only apply once your employee has reached THE PCB threshold.
Most earnings from employment will be taxed. This includes basic pay, overtime, commissions, bonuses, director's fees and service charges. Some allowances and benefits in kind will be exempt from tax in full or up to an annual limit. Benefits in kind that are taxable will still be included even if there isn’t any cash being paid. These could include a company car or housing.
How to Calculate PCB Monthly Tax Deduction
Whilst THE calculation can seem complicated there are 4 steps to calculate.
1. Calculate your estimated taxable income for THE year by adding previous months’ income, current month income and current month recurring income x number of months left in THE year.
2. Subtract any tax exemptions to calculate your chargeable income for THE year.
3. Apply THE tax rates to calculate your tax for THE year.
4. Calculate your PCB by subtracting THE tax already paid and dividing by THE number of months left in THE year.
As THE calculation is based on your actual income, it will change depending on your employees’ pay. If they receive a bonus in March, this will be added to THE estimated income. This will increase THE amount of PCB they pay for that month. The amount already paid will then be applied to THE remaining months. When new employees join, they should provide you with Form TP3 so their previous income and deductions from previous employment can be included. Employees can also reduce their PCB by claiming deductions and rebates (such as zakat) on Form TP1.
How to Choose the Best PCB in Malaysia for Your Business
There are three options for calculating PCB (monthly tax deduction). Each one has two advantages and two disadvantages.
1. LHDN Calculator / e-PCB
The LHDN Calculator (e-PCB) is the official calculation method, and it works from each employee’s actual figures.
Pros:
● Uses actual income and deductions.
● It is the official calculation.
Cons:
● The data must be entered manually each month.
● Manual entry takes time and can lead to input errors.
2. Payroll Software
Payroll software handles the calculation for you, using the same calculation and creating a file ready to submit.
Pros:
● Automatically uses the same calculation.
● Creates a file to submit.
Cons:
● Subscription fee.
● Must be set up correctly.
If you have more than a few employees, it is usually best to use Payroll Software. This removes THE need to manually enter data each month. For most businesses, the best PCB in Malaysia approach is the one that fits your headcount and how often pay changes.
How to Register, Submit and Pay PCB
You will need to register for an Employer Tax File with LHDN. This will give you an E Number. You can do this using THE e-Daftar option on THE MyTax portal. This usually takes 5 working days to arrive. You will need this to pay PCB and complete your annual Form E.
There are 3 options to submit your PCB. e-CP39 can be used to manually enter or one off payments using THE PCB Table / Calculator. e-PCB can be used to manually enter using THE calculator. It will keep a history of your submissions and cumulative income. e-Data PCB can be used to upload THE file. If you are using Payroll Software, you won’t need to enter any data.
You can pay online using FPX with an approved bank, at CIMB Cheque Deposit Kiosks or at POS Malaysia counters. Approved banks will vary. Please check with THE LHDN portal. If you are using Payroll Software, you can upload THE file via your bank portal.
Responsibilities
● Register for an E Number and ask new employees for Form TP3.
● Take PCB monthly and pay by THE 15th of THE following month.
● Complete Form E and CP8D by THE 30th of April THE following year (or 31st March if manually completing).
● Provide each employee Form EA by THE last day of February.
● Keep records for 7 years.
With CP22A and CP21 you should hold back payment to THE employee until tax clearance is given or 90 days from submission.
Benefits and Drawbacks
A pcb monthly tax deduction means that your employees will be paying tax throughout THE year rather than a large amount at THE end. They can also claim deductions using TP1 to reduce THE amount they pay. LHDN will have a consistent income and with a good process in place you will have a clear record of what has been deducted.
Most of THE drawbacks apply to employers. You will have to deal with THE administration and legal obligations. The calculation can be complicated and will change depending on any changes to pay. You will also have tight deadlines to meet and will need to gather TP3 information for anyone joining mid-year. If you over/under pay you will incur a cost.
Common Mistakes
There are 4 common mistakes made. These are the top PCB in Malaysia mistakes that lead to penalties.
● Not gathering TP3 information from new employees. This means your previous income isn’t included.
● Not including taxable benefits in kind.
● Not completing CP22, CP22A and CP21 within 30 days.
● Using THE old PCB table for employees whose pay changes throughout THE year. This assumes they will have THE same salary throughout THE year.
Penalties and Best Practices to Avoid
Failure to provide a return or notice without reasonable excuse (Section 112(1), Income Tax Act 1967) can result in a fine between RM200-RM20,000, up to 6 months in prison or both. If incorrect returns/information are provided (Section 113(1)(b)), you can be fined between RM1,000-RM10,000. There is also a special penalty of twice THE undercharged tax. If you wilfully evade (Section 114(1)) you can be fined between RM1,000-RM20,000, up to 3 years in prison or both. There is also a penalty of 3 times THE undercharged tax.
Best Practices
The best practices below help you avoid the top PCB in Malaysia compliance mistakes.
● Gather TP3 and TP1 information.
● Ensure you are paying THE correct amount each month by checking against THE file.
● Complete CP22, CP22A and CP21 on time.
● Use automated calculations.
● Keep records for 7 years.
How Payroll Software Can Help
As PCB is based on income, deductions and months left, there is a high chance of making an error if you are doing it manually. Using Payroll Software will automatically calculate THE PCB, update when salary, bonus or deduction information changes and create THE file ready to upload to e-Data PCB. Voyon Folks HRMS can help with Malaysian payroll as part of our multi country platform. This means attendance, leave and payroll information will all be used in THE calculation. When looking at any payroll software ask to see a live demo showing mid-year bonuses, new employees with TP3 information and TP1 claims. Ask how they handle updates when LHDN change their requirements. Find out more here https://www.voyonfolks.com/cities/hr-software-in-malaysia
Conclusion
PCB might seem like a simple monthly deduction however it relies on having accurate income information, completing THE correct forms and strict deadlines. If you understand how it works, gather THE correct forms and use automation you can avoid any penalties and employee complaints. Check with LHDN to ensure you are using THE current rates and requirements.
FAQs
1. What does PCB stand for?
Potongan Cukai Bulanan (Monthly Tax Deduction - MTD)
2. Who pays PCB?
Tax is deducted from an employee’s salary by THE employer and sent to LHDN.
3. When should PCB be paid?
By THE 15th of THE month after THE payroll month.
4. What is e-Data PCB?
A portal provided by LHDN to submit your PCB by uploading a file.
5. What is the PCB rate in Malaysia for 2026?
Malaysia's PCB (Potongan Cukai Bulanan) rate for 2026 is calculated based on an employee's annual taxable income, not a fixed percentage.
6. Do I have to use payroll software?
No. You can use THE PCB table (e-CP39) or LHDN calculator however using payroll software will save you time and reduce errors.
7. How long should I keep PCB records for?
7 years.
