PCB / MTD (Monthly Tax Deduction) for Malaysian employers
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If you employ staff in Malaysia, you are responsible for deducting income tax from their pay each month and sending it to LHDN. This is Potongan Cukai Bulanan (PCB), also called Monthly Tax Deduction (MTD). It is one of the most common payroll duties small employers get wrong — usually by miscalculating, missing the deadline, or forgetting the return. This guide explains what PCB/MTD is, what you must do, and what changes the amount.
Want the number instead of the theory? Try the free PCB calculator.
What is PCB / MTD?
PCB (Potongan Cukai Bulanan) and MTD (Monthly Tax Deduction) are two names for one thing. The employer withholds income tax from an employee’s monthly pay and remits it to LHDN on the employee’s behalf. This spreads the annual tax across the year instead of one large bill at filing.
For many employees, if their income is straightforward, PCB deducted over the year can closely match their final tax — in some cases MTD can even serve as their final tax under the rules LHDN sets. As the employer, your job is to deduct the right amount, remit it on time, and report it correctly.
What are my duties as an employer?
You have three duties. Deduct the right PCB from each employee’s pay using LHDN’s prescribed method. Remit the total you withheld to LHDN by the statutory monthly deadline. Report it on the CP39 return, which lists each employee and the PCB deducted.
Deduct: for each pay period, calculate the PCB on the employee’s remuneration using LHDN’s prescribed method (the computerised calculation method is the common route) and withhold it from their pay.
Remit: pay the total PCB you withheld to LHDN by the statutory monthly deadline. Late payment can attract penalties, so the date matters as much as the amount.
Report: submit the prescribed monthly return that lists each employee and the PCB deducted. This return is the CP39. Many employers submit it electronically through LHDN’s channels. You also reflect the year’s figures in the employee’s annual statement of remuneration (the EA form / C.P.8A) so they can file their own return.
What affects the PCB amount?
PCB is calculated on chargeable income after deductions and reliefs, not as a flat percentage of gross pay. EPF contributions, personal reliefs, prior-employment income, residency status and additional remuneration all move the number. A non-resident is taxed at a flat 30%.
Taking those factors in turn:
Statutory contributions: an employee’s mandatory EPF (and certain other approved fund) contributions are deductible up to the limits set by LHDN, which lowers chargeable income and therefore PCB.
Personal reliefs and rebates: the standard individual relief, spouse and child reliefs, and similar items reduce the tax base. Employees can declare additional reliefs to their employer using the TP1 form (for example, certain lifestyle, medical or education expenses) so their monthly PCB reflects them, rather than waiting for a refund at filing.
Prior employment in the same year: an employee who joins mid-year may have had income and PCB with a previous employer. The TP3 form captures that prior-employment information so the new employer can calculate PCB correctly for the rest of the year.
Other variables include the employee’s tax residency status, marital and dependant details, bonuses and other additional remuneration (which can be taxed differently from regular monthly pay), and benefits-in-kind. Because the relief amounts and the calculation parameters can change from year to year, always run the current year’s figures rather than reusing last year’s.
Two further rules are worth knowing. A non-resident employee’s MTD is a flat 30% of remuneration, with no reliefs (as at July 2026, source: LHDN). And where the calculated MTD for a month comes to less than RM10, no deduction is made. Both rules come from LHDN’s computerised calculation specification — verify them there before relying on this summary.
| Relief | Annual amount |
|---|---|
| Individual (self) | RM9,000 |
| Spouse (no income, assessed together) | RM4,000 |
| Each qualifying child | RM2,000 |
| Disabled individual (additional) | RM7,000 |
| Disabled spouse (additional) | RM6,000 |
| Employee EPF contributions allowed in the MTD formula | Capped at RM4,000 per year |
Amounts follow LHDN’s computerised MTD calculation parameters for YA 2026. Relief amounts change with annual budgets — the disabled-person reliefs, for example, rose in YA 2025 — so confirm the current year’s figures with LHDN before relying on them.
What is the CP39 return?
CP39 is the statement of monthly tax deductions an employer submits to LHDN, listing employees and the PCB withheld for the period. It is the link between the money you remit and the employees it belongs to, so the totals on your CP39 should reconcile with what you actually paid over.
Getting CP39 right matters because it feeds each employee’s tax record. Errors or omissions can create mismatches that surface later when employees file their own returns. Keeping accurate monthly records makes both the CP39 and the year-end EA form straightforward.
How Taokeh payroll automates PCB / MTD
Taokeh, the Malaysian SME accounting software by Enya Venture, calculates PCB for each employee using LHDN’s computerised method, taking into account EPF contributions, declared reliefs, residency status and additional remuneration — so you are not maintaining a spreadsheet of tax tables by hand.
It supports the inputs that change the number, including TP1 relief declarations and TP3 prior-employment details, and it produces the CP39 export for your monthly submission. At year end it generates the EA form (C.P.8A) for each employee from the same payroll data.
Because payroll sits on the same ledger as the rest of your accounting in Taokeh, the salary, statutory contributions and PCB are recorded consistently — your books and your statutory submissions come from one source rather than being reconciled after the fact.
Frequently asked questions
Is PCB the same as MTD?
Yes. PCB (Potongan Cukai Bulanan) is the Malay term and MTD (Monthly Tax Deduction) is the English term for the same monthly income-tax withholding by employers.
What is the CP39?
CP39 is the monthly return an employer submits to LHDN listing employees and the PCB amounts deducted. Its totals should reconcile with the PCB you remitted for the period.
How do reliefs like TP1 and TP3 affect PCB?
TP1 lets an employee declare additional allowable reliefs (such as certain lifestyle, medical or education expenses) so their monthly PCB reflects them. TP3 captures income and PCB from prior employment in the same year so a new employer calculates the remaining PCB correctly.
Does EPF reduce PCB?
Yes. An employee’s mandatory EPF contributions are deductible in the MTD formula up to RM4,000 a year (as at July 2026, source: LHDN). That lowers chargeable income and therefore the PCB. Confirm the current cap for the year you are calculating.
How much is the individual relief in the PCB calculation?
For YA 2026 the individual relief is RM9,000 a year (as at July 2026, source: LHDN). A non-working spouse adds RM4,000 and each qualifying child RM2,000. These amounts change with annual budgets, so confirm the current year’s figures with LHDN.
Updated July 2026
This guide is general information for Malaysian SMEs, not tax, legal or accounting advice. Always confirm current rules and figures with the relevant authority or your own adviser.
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Related guides
- EPF, SOCSO & EIS: a Malaysian employer’s statutory contributions explained
- LHDN e-Invoice (MyInvois) for Malaysian SMEs: a plain-English guide