What is the difference between computerised and manual PCB calculation?

The computerised method uses LHDN's mathematical formula considering cumulative income, reliefs, and deductions for precise calculations. The manual table method uses predetermined lookup tables based on salary and tax category. The computerised method is more accurate for variable incomes and bonuses.

What tax reliefs can reduce PCB deduction?

Common reliefs include: Personal relief (RM9,000), Spouse relief (RM4,000), Child relief (RM2,000-8,000 per child), EPF contributions (up to RM4,000), Life insurance (up to RM3,000), Medical insurance (up to RM3,000), and Lifestyle relief (RM2,500). Employees must submit Borang TP1 to claim these.

When must employers submit PCB to LHDN?

Employers must remit PCB to LHDN by the 15th of the following month. For example, January salaries' PCB must be submitted by 15th February. Late submissions may incur penalties of up to 35% of the unpaid amount.

How does HavaHR automate PCB calculation?

The HavaHR payroll system uses LHDN's computerised formula for real-time MTD calculation. It automatically updates tax rates, integrates employee-submitted Borang TP1 reliefs, handles variable income and bonuses, sends payment reminders, and generates Borang EA at year-end.

What is the PCB threshold salary in Malaysia?

PCB applies to employees whose monthly income exceeds the minimum taxable threshold after deducting EPF contributions and approved reliefs. For 2025, the first RM5,000 of chargeable income is taxed at 0%, meaning employees with low income after reliefs may have zero PCB.

Can employees claim tax relief during the year?

Yes, employees can submit Borang TP1 at the start of employment or beginning of the year to declare reliefs. Mid-year relief claims can be made via Borang TP3. These forms allow employers to reduce PCB deductions based on approved reliefs.

What happens if PCB is calculated incorrectly?

Incorrect PCB calculations may result in under-deduction (employee owes tax at year-end) or over-deduction (employee gets refund). Employers who fail to deduct or remit correctly may face LHDN penalties up to 35% of unpaid tax and potential legal action.

What is the progressive tax rate in Malaysia for 2025?

Malaysia's 2025 tax rates for residents: 0% (first RM5,000), 1% (RM5,001-20,000), 3% (RM20,001-35,000), 6% (RM35,001-50,000), 11% (RM50,001-70,000), 19% (RM70,001-100,000), 25% (RM100,001-400,000), 26% (RM400,001-600,000), 28% (RM600,001-2M), 30% (above RM2M).

Do non-residents pay PCB differently?

Yes, non-residents (in Malaysia less than 182 days per year) are subject to a flat 30% tax rate on all Malaysian-sourced income. They cannot claim personal reliefs or deductions available to tax residents.

How to Calculate Monthly Tax Deduction (PCB) in Malaysia for 2025

Q: What is PCB (Potongan Cukai Bulanan) in Malaysia?

PCB (Potongan Cukai Bulanan) or Monthly Tax Deduction (MTD) is Malaysia's pay-as-you-earn tax system. Employers deduct income tax from employees' salaries monthly and remit to LHDN by the 15th of the following month. Progressive tax rates range from 0% to 30% for residents.

Monthly Tax Deduction, known locally as Potongan Cukai Bulanan (PCB), is a mandatory deduction that Malaysian employers must remit to the Lembaga Hasil Dalam Negeri (LHDN) on behalf of their employees. Understanding how to calculate MTD accurately is crucial for avoiding penalties and ensuring compliance with Malaysian tax regulations.

This guide provides a thorough overview of PCB calculation methods, common tax reliefs, and how modern payroll solutions like the HavaHR payroll system can streamline this process.

Understanding PCB: The Basics

PCB is Malaysia's pay-as-you-earn tax system, where employers deduct income tax from employees' salaries monthly before remitting the amount to LHDN. The system ensures that employees do not face a hefty tax bill at year-end, as their tax obligations are spread throughout the year.

For 2025, the progressive tax rates for Malaysian tax residents range from 0% to 30%, depending on chargeable income. Non-residents are subject to a flat rate of 30% on all Malaysian-sourced income. Employers are legally obligated to make these deductions and submit them by the 15th of the following month, failing which penalties may be imposed.

2025 Progressive Tax Rates for Residents

Chargeable Income (RM)	Tax Rate
0 – 5,000	0%
5,001 – 20,000	1%
20,001 – 35,000	3%
35,001 – 50,000	6%
50,001 – 70,000	11%
70,001 – 100,000	19%
100,001 – 400,000	25%
400,001 – 600,000	26%
600,001 – 2,000,000	28%
Above 2,000,000	30%

Computerised Calculation vs Manual Tables: What Is the Difference?

When performing MTD calculation, employers have two primary methods at their disposal: the computerised calculation method and the manual table method. Understanding the distinction between these approaches is essential for accurate tax compliance.

The Computerised Calculation Method

The computerised calculation method, also known as the Schedule (Jadual) PCB computerised formula, uses a mathematical approach that takes into account the employee's annual projected income, tax reliefs, and applicable deductions. This method calculates the monthly PCB based on a more precise projection of the employee's annual tax liability.

The formula considers:

The employee's cumulative income for the year
Approved tax reliefs and deductions claimed
EPF contributions and other qualifying deductions
The employee's residency status

Modern payroll software and the LHDN calculator utilise this method to provide accurate, real-time PCB calculations. The computerised method is particularly advantageous for employees with variable incomes, bonuses, or mid-year salary adjustments, as it recalculates the tax liability dynamically.

The Manual Table Method

The manual table method, also referred to as the PCB Schedule or e-PCB tables provided by LHDN, offers a simplified lookup approach. Employers refer to predetermined tables based on the employee's monthly remuneration and tax category (single, married with non-working spouse, etc.) to determine the PCB amount.

Whilst this method is straightforward, it may result in over-deduction or under-deduction of taxes, particularly for employees with irregular income patterns or those claiming multiple tax reliefs. The manual table does not account for cumulative earnings as precisely as the computerised method.

For 2025, LHDN recommends using the computerised calculation method for greater accuracy, especially for organisations with complex payroll structures.

Common Tax Reliefs to Consider

Tax reliefs reduce an employee's chargeable income, thereby lowering their PCB deduction. HR managers must ensure that employees submit the necessary documentation (Borang TP1) to claim these reliefs. Below are the most common tax reliefs applicable for 2025.

Personal Relief

Every Malaysian tax resident is entitled to a personal relief of RM9,000 annually. This is automatically applied when calculating PCB.

Spouse Relief

If an employee has a spouse with no income or earning less than RM4,000 annually, the employee may claim a spouse relief of RM4,000.

Child Relief

Employees may claim relief for each unmarried child:

RM2,000 per child under 18 years of age
RM2,000 per child aged 18 and above who is still studying at tertiary level (full-time)
RM8,000 per child aged 18 and above pursuing higher education in Malaysia or abroad

Life Insurance and EPF Relief

Contributions to life insurance premiums and the Employees Provident Fund (EPF) qualify for tax relief of up to RM7,000 annually, split as follows:

EPF contributions: up to RM4,000
Life insurance premiums: up to RM3,000

Medical and Health Insurance Relief

Employees may claim up to RM3,000 for medical and health insurance premiums paid for themselves, their spouse, or their children.

Lifestyle Relief

The lifestyle relief of up to RM2,500 covers expenses such as:

Books, journals, and publications
Personal computer, smartphone, or tablet
Sports equipment and gym memberships
Internet subscription

Additionally, an extra RM500 lifestyle relief is available for sports equipment and activities.

Medical Expenses for Parents

Employees may claim up to RM8,000 for medical expenses incurred for their parents, including medical treatment, special needs, and carer expenses.

Education Fees (Self)

Employees pursuing approved courses of study up to tertiary level may claim up to RM7,000 for course fees.

Proper documentation and submission of Borang TP1 and TP3 forms are essential for employers to apply these reliefs when calculating PCB.

How HavaHR Automates MTD Calculation to Prevent LHDN Penalties

Manual PCB calculations are not only time-consuming but also prone to errors that can result in LHDN penalties. Late or incorrect submissions may attract penalties of up to 35% of the unpaid tax amount, making accuracy paramount.

The HavaHR payroll system automates the entire MTD calculation process, ensuring compliance with LHDN's latest guidelines and tax rates for 2025. Here is how the HavaHR payroll system helps prevent penalties:

Automatic Tax Rate Updates

The HavaHR payroll system is updated with the latest LHDN progressive tax rates, ensuring that calculations are always compliant with current regulations. HR managers no longer need to manually check for changes to tax brackets or relief amounts.

Integrated Tax Relief Management

Employees can submit their Borang TP1 claims directly through the system, and approved reliefs are automatically factored into their monthly PCB calculations. This reduces administrative burden and minimises the risk of overlooked deductions.

Real-Time Calculation Using the LHDN Calculator Formula

The HavaHR payroll system utilises the LHDN calculator formula for real-time, accurate PCB calculations. Variable income, bonuses, and salary adjustments are automatically accounted for, ensuring precise deductions every month.

Timely Remittance Reminders

The system generates reminders and reports to ensure that PCB remittances are submitted before the 15th of each month, preventing late payment penalties.

Comprehensive Reporting and EA Form Generation

At year-end, the HavaHR payroll system automatically generates Borang EA (Form EA) for each employee, summarising their annual income, deductions, and tax contributions. This simplifies the annual tax filing process for both employers and employees.

HR Manager's Checklist for Tax Season

To ensure smooth PCB administration and avoid LHDN penalties, HR managers should follow this checklist:

Beginning of Year

Collect updated Borang TP1 from all employees declaring tax reliefs
Verify employee tax residency status for the current year
Update employee records in the payroll system with new salary information

Monthly

Run payroll calculations using the computerised MTD calculation method
Verify PCB deductions against employee payslips
Submit PCB payments to LHDN by the 15th of the following month
Retain payment receipts and records for audit purposes

Mid-Year

Process any Borang TP3 submissions from employees (for additional tax deductions)
Adjust PCB calculations for employees with mid-year salary changes or bonuses

Year-End

Generate and distribute Borang EA to all employees by the last day of February
Reconcile annual PCB remittances against payroll records
Submit CP8D (Statement of Remuneration) to LHDN by the stipulated deadline
Archive all payroll and tax records for a minimum of seven years

Conclusion

Accurate MTD calculation is a legal obligation for Malaysian employers and a critical component of responsible HR management. By understanding the difference between computerised and manual calculation methods, staying informed about available tax reliefs, and leveraging automated solutions like the HavaHR payroll system, organisations can ensure compliance, avoid costly LHDN penalties, and provide a seamless payroll experience for their employees.

For HR managers navigating the complexities of PCB administration, investing in a reliable LHDN calculator and integrated payroll solution is no longer optional—it is essential for sustainable business operations in Malaysia.