Editor’s note: ‘Introduction to Monthly Tax Deduction (MTD/PCB) – Part 1 of 3’ was uploaded on 18 May 2020 and recently updated on 4 Aug 2022.
What is MTD/PCB?
MTD stands for Monthly Tax Deduction, also known as Potongan Cukai Bulanan (PCB). Hence, you may realise that MTD and PCB can be used interchangeably.
In essence, MTD/PCB is a series of monthly deductions that go towards paying the taxes that are in relation to your employment income.
Fun Fact: The Lembaga Hasil Dalam Negeri Malaysia (LHDN) / Inland Revenue Board of Malaysia (IRBM) first introduced MTD/PCB on 1 Jan 1995.
Why did LHDN introduce MTD/PCB?
LHDN wanted to help taxpayers who were struggling to pay a lump sum tax at the end of the year. That is why LHDN introduced MTD/PCB, so taxpayers can make monthly tax payments in advance instead.
Do I need to file tax returns?
You can choose to not file a tax return if you meet the following conditions. Because by meeting these conditions, your MTD/PCB paid is considered as a final tax:
- Your employment income is prescribed under Section 13 of the Income Tax Act 1967;
- You serve under the same employer for a 12-month period in a calendar year (i.e. Jan 1 to Dec 31).
- Your MTD/PCB is under the Income Tax (Deduction from Remuneration) Rules 1994;
- Your employer has been deducting MTD/PCB from your salary correctly;
- Your taxes are not borne by your employer;
- You have not opted for a joint assessment with your spouse.
However, the exemption does not apply if any of the above conditions are not met. In that case, you must file a tax return.
Many mistake MTD/PCB as a final tax. Take care to note that MTD/PCB are tax deductions that are part of the final tax; however, your MTD/PCB will not be considered a final tax if the above conditions aren’t met.
How does it work?
Introducing: Income Tax Form TP1
Income Tax Form TP1 is where your employer has to indicate your tax reliefs. The employer will need to refer to the employee’s data that was submitted to the Human Resource (HR) department at the start of the employee’s employment. From there, the employer will then need to key in the relevant details into the form.
Then, the employer will need to submit the form to LHDN.
Thereafter, the employer must remit the amount deducted to LHDN every month, according to the Income Tax (Deduction and Remuneration) Rules 1994. In other words, your employer should help you request deduction for other reliefs, to ensure your MTD is part of your final tax.
Did you know: MTD/PCB can be remitted through tapes or diskettes? Employers with more than 20 employees are encouraged to follow this process as it is faster and eliminates errors when transcribing the details into the Inland Revenue Board of Malaysia’s computer system.
Download the official Form TP1 to see the updated list of MTD/PCB tax reliefs, which includes:
- Medical treatment, special needs and carer expenses for parents,
- Basic supporting equipment for use by the disabled employee, spouse or parents.
- Self-education fees,
- Medical expenses on serious diseases,
- Complete medical examination,
- Purchase of books, magazines and journals,
- Purchase of personal computer, smartphone or tablet
- Net deposit in Skim Simpanan Pendidikan Nasional (SSPN),
- Purchase of sports equipment,
- Alimony payment to ex-wife,
- Life insurance,
- Education/medical insurance,
- Deferred annuity, and
- Zakat payment (only if not deducted through MTD already).
Late Payment Fine
If an employer fails to remit payment on or before the 15th of the following month, he or she can be fined. The minimum fine is RM200 and not more than RM20,000 or 6 months imprisonment or both.
An employer who does not deduct MTD or deducts but fails to remit the MTD to IRBM can be prosecuted in a civil court. With this, the MTD not deducted becomes a debt to the Government.
For more info, you can refer to Inland Revenue Board of Malaysia official portal.
Now that you know what Malaysia’s Monthly Tax Deduction (MTD/PCB) is all about, the next article (Part 2 of 3) will show you how to calculate it and how contributions are made from your monthly salary. Regardless of whether you are an employee or employer, the next article will surely be useful to you. Stay tuned!
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