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Summary. Malaysian employers must deduct Potongan Cukai Bulanan (PCB), also called Monthly Tax Deduction (MTD), from employees' pay and remit it to the Inland Revenue Board of Malaysia (LHDN) by the 15th of the following month. Each year they must also give employees Form EA by 28 February and file Form E with C.P.8D by 31 March, while employees file their own returns by 30 April (Form BE) or 30 June (Form B). Budget 2027 raises individual self relief from RM9,000 to RM12,000 and cuts tax rates for chargeable income between RM70,000 and RM150,000 from year of assessment (YA) 2027, so employers need to update PCB calculations before January 2027. Omni HR payroll calculates PCB alongside Employees Provident Fund (EPF), Social Security Organisation (SOCSO) and Employment Insurance System (EIS) contributions, generates EA forms and keeps an audit-ready record of every deduction.
Tax compliance is a core payroll obligation in Malaysia. Employers are responsible for calculating, deducting and remitting employees' income tax every month through PCB, and for reporting employee pay to LHDN every year. Getting either wrong exposes the business to fines and employees to unexpected tax bills.
This guide covers what employers need to know about PCB, the 2027 tax changes, annual reporting deadlines and what employees are responsible for. For the employee's side of filing in more detail, see our guide to income tax filing in Malaysia, and for payroll as a whole, our guide to Malaysia payroll.
What is LHDN/IRBM?
The Inland Revenue Board of Malaysia (IRBM), known in Malay as Lembaga Hasil Dalam Negeri (LHDN), is the government agency that collects tax and administers Malaysia's tax laws, including the Income Tax Act 1967. It collects income tax, corporate tax and other direct taxes, and runs the MyTax portal that employers and employees use to register, file and pay.
What is Potongan Cukai Bulanan (PCB)/ Monthly Tax Deduction (MTD)?
PCB Malaysia (Potongan Cukai Bulanan), also called Monthly Tax Deduction (MTD), is income tax that employers deduct from employees' monthly pay and remit to LHDN on their behalf. The amount is worked out using LHDN's MTD schedule and counts towards the employee's final tax for the year.
What is the purpose of PCB?
PCB spreads an employee's tax across the year on a pay-as-you-earn basis, so employees avoid a large lump-sum bill when they file. It also gives LHDN a steady, timely flow of revenue and reduces late or missed payments. When the PCB deducted during the year matches the employee's actual tax, the employee has nothing further to pay when they file.
What is subject to PCB?
PCB applies to employees whose monthly remuneration, after allowable deductions such as Employees Provident Fund (EPF) contributions and the reliefs they qualify for, results in tax payable under LHDN's MTD schedule. Employees who become taxable must register an income tax reference number with LHDN.
PCB is calculated on employment income, including:
- Salary, wages and overtime
- Commissions, bonuses and allowances
- Taxable benefits-in-kind (BIK) and value of living accommodation (VOLA), where the employer chooses to include them in PCB
Some benefits are exempt or partly exempt under LHDN's public ruling on benefits-in-kind, such as dental and medical benefits, childcare benefits, leave passage (subject to conditions) and free transport between home and work. Employees can also submit Form TP1 to claim additional reliefs through PCB, and new hires use Form TP3 to declare income from a previous employer in the same year. See our guide to the TP3 form.
Relevant reading: Your Guide to Malaysia Payroll
What is the income tax rate for residents?
Malaysian tax residents pay income tax at progressive rates from 0% to 30% on chargeable income, while non-residents pay a flat 30%. Residency, not citizenship, decides which applies.
You are generally a tax resident for a calendar year if you meet one of these tests under the Income Tax Act 1967:
- 182-day rule: you are physically in Malaysia for at least 182 days in the year (the days need not be consecutive).
- Linked periods: you are in Malaysia for fewer than 182 days, but that period links to a continuous period of at least 182 days in the year before or after.
- 90-day rule: you are in Malaysia for at least 90 days in the year and were resident or in Malaysia for at least 90 days in any three of the previous four years.
Resident individuals currently pay tax at these rates on chargeable income (see LHDN's official tax rate page):
Taxable income includes employment income; business gains or profits; dividends, interest or discounts; rents, royalties or premiums; pensions and annuities; and employer benefits that can be converted into cash.
What's changing from YA 2027
Budget 2027, tabled on 9 October 2026, proposes several changes that affect employers' payroll and PCB:
Proposed resident tax rates for YA 2027
Based on Budget 2027 announcements, the proposed rates for resident individuals compare with current rates as follows:
Note: These are proposed rates and take effect once the Budget 2027 measures are legislated. We will update this table with the full official schedule once LHDN publishes the YA 2027 tax rates and the updated MTD schedule, so check back before you finalise January 2027 payroll.
For wider 2027 changes across Singapore, Malaysia and the Philippines, see our HR compliance checklist for 2027 and the latest compliance updates.
Employer's Responsibility for PCB
Employers are legally responsible for registering with LHDN, deducting PCB every month, remitting it on time, reporting employee pay each year and keeping records. These are the key deadlines for the 2026 filing year:
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Mark these dates in our free HR Calendar 2027
1. Register with IRBM
Employers must register an employer's income tax reference number (E number) with LHDN before deducting PCB. Employees who become taxable must register their own income tax reference number, which they can do online through e-Daftar. Employers must also notify LHDN of new employees within one month of hiring (Form CP22).
2. Monthly tax deduction
Calculate each employee's PCB using LHDN's MTD schedule or calculator, which takes into account monthly pay, statutory deductions and the reliefs the employee is eligible for. Before calculating, deduct the employee's Employees Provident Fund (EPF) contribution (up to the allowable limit), and account for Social Security Organisation (SOCSO) and Employment Insurance System (EIS) contributions. Reimbursements for business expenses are not employment income.
Submit the monthly MTD data and pay by the 15th of the following month through LHDN's e-PCB Plus or e-Data PCB on MyTax, or pay through FPX and participating banks using the PCB payment reference. Where LHDN instructs you to deduct arrears or a departing employee's tax, use Form CP38 or CP39; see our guide to CP38 vs CP39. Check the employer side of contributions with our EPF calculator.
Most PCB errors come from employee details falling out of date, such as a new child, a spouse who stops working or a change in residency status. With Omni HR payroll, PCB is calculated from the employee data already held in the HR system, so changes employees make through employee self-service flow into the next payroll run and every month's deduction record is ready for submission.
3. Annual tax reporting
Each year, employers must:
- Give employees Form EA (C.P.8A) or EC (C.P.8C) by 28 February. It reports the employee's salary, bonuses, allowances, taxable benefits and PCB deducted for the previous year, so employees can file their own returns. See our guide to the EA form.
- Submit Form E (Borang E) with C.P.8D by 31 March. Form E declares the number of employees and their remuneration; C.P.8D lists each employee's income and deductions. Form E must be filed electronically (Form e-E), and it is only complete once C.P.8D is submitted on or before the due date.
- Submit Form CP58 to agents, dealers or distributors who receive commissions or incentive payments, where applicable.
Under section 120(1)(b) of the Income Tax Act 1967, failing to submit Form E can lead to a fine of RM200 to RM20,000, imprisonment of up to six months, or both.
4. Record keeping
Keep complete records of salaries, PCB deductions, payment receipts and supporting documents for at least seven years, and make them available if LHDN requests an inspection. Centralised payroll and employee records make audits faster and reduce the risk of missing documents.
Read next: The Top Payroll Software for Malaysia
Employee’s Responsibility for PCB
Employers remit PCB, but employees are still responsible for filing an annual tax return and giving their employer accurate information. Sharing these responsibilities with your team helps avoid PCB errors and unexpected tax bills.
1. Filing income tax return
Every taxable employee files an income tax return (ITRF) each year, even when PCB has been deducted. The form and deadline depend on the employee's situation:
Employees can e-file through the MyTax portal, which calculates tax automatically and processes refunds faster, or file a paper form at an LHDN branch. Our Malaysia income tax filing guide walks through e-filing step by step.
2. Maintaining records
Employees should keep payslips, Form EA and receipts for any reliefs they claim, in case LHDN asks for proof. Employers must issue Form EA by 28 February each year.
3. Understanding tax reliefs
Employees can reduce their chargeable income by claiming reliefs such as self relief, EPF and life insurance, medical expenses, education fees and lifestyle purchases. From YA 2027, self relief rises to RM12,000 and several relief categories are expanded. Employees can also submit Form TP1 to their employer to reflect eligible reliefs in monthly PCB, rather than waiting for a refund.
4. Provide accurate information
Employees should give their employer their correct income tax reference number, marital status, number of children and any spouse's working status, as these affect the PCB calculation. New hires who changed jobs mid-year should submit Form TP3 so PCB accounts for income already earned.
5. Pay additional tax on time
If the PCB deducted during the year is less than the actual tax payable, the employee must pay the balance by the filing deadline. Late payment attracts a penalty of 10% on the unpaid amount.
6. Stay updated on regulations
Tax rules change every year with the Budget, as YA 2027 shows. LHDN's website is the official source, and our quarterly compliance updates summarise changes across Malaysia and the region.
Learn more: Top 5 Challenges of Malaysia's Tax Season and How HRIS Solutions Can Help
Get PCB Malaysia Right in 2027 with Omni HR
With a higher self relief, new tax rates and an updated MTD schedule arriving for YA 2027, PCB calculations will change for almost every employee in January 2027. Review your payroll settings now, remind employees to update their Form TP1 claims, and make sure Form EA and Form E are ready well before the February and March deadlines.
Omni HR runs Malaysia payroll in the same system as your HR data, so statutory deductions stay accurate as rules change:
- PCB calculated automatically: monthly tax deductions follow LHDN's MTD rules, alongside EPF, SOCSO, EIS and PCB filing, with rules updated when regulations change.
- Year-end forms generated: produce Form EA for every employee from the payroll data you already hold.
- Digital, secure payslips: employees view payslips and tax information through employee self-service.
- One system for multi-country teams: run Malaysia payroll next to Singapore, the Philippines and Hong Kong from one platform. See where you can pay employees with Omni HR.
- Managed option: prefer not to run payroll in-house? Our managed payroll services handle processing and statutory filings for you.
Compare options in our guides to HR and payroll systems in Malaysia and HR software in Malaysia, or book a demo to see Omni HR's Malaysia payroll in action.
Frequently Asked Questions
PCB (Potongan Cukai Bulanan), or Monthly Tax Deduction (MTD), is income tax that employers deduct from employees' monthly pay and remit to LHDN. It is calculated using LHDN's MTD schedule and offsets the employee's final tax for the year, so most employees owe little or nothing when they file.
Employers must remit PCB for each month by the 15th of the following month, through e-PCB Plus or e-Data PCB on MyTax or through FPX and participating banks. For example, PCB deducted from January salaries is due by 15 February. Read our Malaysia payroll guide for the full monthly cycle.
Form E (Borang E) for the previous year is due by 31 March, with a one-month grace period for e-filing. It must be filed electronically, and it is only complete when C.P.8D is submitted with it. Employers must also give employees Form EA by 28 February. See our EA form guide.
From YA 2027, Budget 2027 proposes cutting rates for chargeable income between RM70,000 and RM150,000 by one percentage point (to 18% for RM70,001 to RM100,000 and 24% for RM100,001 to RM150,000) and applying the top 30% rate from RM1 million instead of RM2 million. Self relief also rises to RM12,000. The changes take effect once legislated.
Yes. Employees who are not tax residents are taxed at a flat 30% on their Malaysian employment income, and employers deduct PCB at that rate. An employee's residency status can change during the year, so payroll should be reviewed when it does.
The employer becomes liable for the tax that should have been deducted, plus penalties. Failing to submit Form E can lead to a fine of RM200 to RM20,000, imprisonment of up to six months, or both. Accurate payroll software and on-time remittance avoid these risks.
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