Malaysia PCB (MTD) Guide (2026): Monthly Tax Deduction Explained
Malaysia Payroll Tax Guide Series
Whether you're an HR professional, payroll administrator or employee, this series explains Malaysia's payroll tax requirements from tax reliefs to Monthly Tax Deduction (PCB).
- Part 1: Malaysia Income Tax Relief Guide (2026): Complete List of Tax Reliefs & Deductions
- Part 2: Malaysia Form TP1 Guide (2026): Employee Tax Relief Declaration
- Part 3: Malaysia Form TP3 Guide (2026): Previous Employment Information
- Part 4: Malaysia PCB (MTD) Guide (2026): Monthly Tax Deduction Explained
- Part 5: Malaysia Tax Exempt Benefits Guide (2026)
- Part 6: Malaysia Benefits-in-Kind (BIK) Guide (2026)
- Part 7: Malaysia Perquisites Guide (2026)
You're currently reading: Part 4 – Malaysia PCB (MTD) Guide
At a Glance
| Question | Answer |
|---|---|
| What is PCB? | Monthly Tax Deduction (Potongan Cukai Bulanan) deducted from an employee's salary. |
| Who deducts PCB? | Employer. |
| Who receives it? | Inland Revenue Board of Malaysia (LHDN). |
| Is PCB compulsory? | Yes, where applicable under LHDN rules. |
| Is PCB the final tax? | No. Final tax is determined after annual income tax filing. |
| Can PCB change every month? | Yes. |
| Can TP1 affect PCB? | Yes. |
| Can TP3 affect PCB? | Yes. |
Quick Summary
This guide explains:
- What PCB (MTD) is
- What affects PCB calculation
- Common payments that affect PCB
- Additional remuneration
- Employer responsibilities
- Frequently asked questions
What Is Included in PCB Calculation?
Monthly Tax Deduction (PCB) is calculated based on the employee's taxable remuneration and relevant tax information maintained by the employer.
The exact calculation follows the latest LHDN PCB (MTD) Specification and may change when an employee's remuneration or tax information changes.
What Can Cause PCB to Change?
Monthly Tax Deduction (PCB) is not always the same every month. It may increase or decrease depending on changes to an employee's remuneration or tax information.
| Situation | PCB May Change? | Reason |
|---|---|---|
| Basic salary increase | ✅ | Higher taxable income |
| Salary reduction | ✅ | Lower taxable income |
| Annual bonus | ✅ | Additional remuneration |
| Performance bonus | ✅ | Additional remuneration |
| Commission | ✅ | Additional remuneration |
| Incentive payment | ✅ | Additional remuneration |
| Overtime payment | ✅ | Taxable remuneration (where applicable) |
| Fixed allowance | ✅ | Depending on tax treatment |
| Taxable allowance | ✅ | Included in remuneration |
| Benefits-in-Kind (BIK) | ✅ | Taxable benefit |
| Perquisites | ✅ | Taxable benefit |
| Salary arrears | ✅ | Additional remuneration |
| Back pay | ✅ | Additional remuneration |
| Ex-gratia payment | ✅* | Depends on tax treatment |
| Director's fees | ✅ | Subject to applicable tax rules |
| Unpaid leave | ✅ | Lower remuneration |
| Form TP1 submitted | ✅ | Eligible tax reliefs updated |
| Form TP3 submitted | ✅ | Previous employment information updated |
Note: Whether a payment affects PCB depends on the Income Tax Act 1967, LHDN guidelines and the latest PCB (MTD) Specification.
Monthly Remuneration vs Additional Remuneration
One of the most common payroll questions is whether a payment is treated as monthly remuneration or additional remuneration.
| Monthly Remuneration | Additional Remuneration |
|---|---|
| Basic Salary | Annual Bonus |
| Fixed Monthly Allowance | Performance Bonus |
| Fixed Wage | Commission |
| Regular Monthly Payment | Incentive Payment |
| Regular Shift Allowance | Salary Arrears |
| Contractual Monthly Payment | Back Pay |
| Ex-gratia Payment (where taxable) | |
| Director's Fees |
Additional remuneration may be subject to a different PCB calculation method under the LHDN specification.
Common Additional Remuneration
According to the LHDN PCB Specification, additional remuneration generally refers to payments made in addition to normal monthly remuneration.
Common examples include:
| Payment | Common Example |
|---|---|
| Annual Bonus | Year-end bonus |
| Performance Bonus | KPI bonus |
| Commission | Sales commission |
| Incentive | Productivity incentive |
| Salary Arrears | Backdated salary adjustment |
| Back Pay | Salary revision |
| Director's Fees | Director remuneration |
| Ex-gratia Payment | Discretionary payment (where taxable) |
Some payments, such as gratuity or compensation for loss of employment, may be fully or partially exempt depending on the applicable tax rules and are covered separately in later articles.
Common Payments & PCB Treatment
| Payment Type | Usually Taxable | May Affect PCB |
|---|---|---|
| Basic Salary | ✅ | ✅ |
| Bonus | ✅ | ✅ |
| Commission | ✅ | ✅ |
| Overtime | Generally Yes | ✅ |
| Fixed Allowance | Usually | ✅ |
| Meal Allowance | Depends on exemption rules | Depends |
| Petrol Allowance | Depends on exemption rules | Depends |
| Benefits-in-Kind (BIK) | Yes (subject to valuation rules) | ✅ |
| Perquisites | Yes | ✅ |
| Compensation for Loss of Employment | Depends on exemption eligibility | Depends |
Employer Responsibilities
Employers should:
☑ Calculate PCB using the latest LHDN PCB Specification.
☑ Deduct PCB from employees' remuneration where applicable.
☑ Remit PCB to LHDN within the prescribed timeline.
☑ Process Form TP1 and Form TP3 where applicable.
☑ Maintain payroll and tax records.
Employee Responsibilities
Employees should:
☑ Provide accurate personal information.
☑ Submit Form TP1 when eligible tax reliefs arise.
☑ Submit Form TP3 if joining a new employer after previous employment within the same Year of Assessment.
☑ Keep supporting documents.
☑ File the annual Income Tax Return where required.
Common Misconceptions
| Myth | Fact |
|---|---|
| PCB is my final income tax. | PCB is only a monthly tax deduction. |
| PCB should always be the same every month. | PCB may change depending on remuneration and tax information. |
| TP1 automatically guarantees a tax refund. | TP1 updates monthly PCB only. |
| Employees only pay tax during annual filing. | PCB is deducted throughout the year where applicable. |
HR Checklist
Before finalising payroll:
☑ Employee profile verified.
☑ Salary changes updated.
☑ Additional remuneration reviewed.
☑ TP1 processed.
☑ TP3 processed.
☑ Payroll calculated using the latest LHDN specification.
☑ Payroll records retained.
Frequently Asked Questions
1. What is PCB?
PCB (Potongan Cukai Bulanan), also known as Monthly Tax Deduction (MTD), is a monthly income tax deduction made by employers on behalf of eligible employees.
2. Is PCB compulsory?
Employers are required to deduct and remit PCB where applicable under the relevant tax rules.
3. Can PCB change every month?
Yes. Changes in salary, bonuses, allowances, tax relief declarations or previous employment information may affect the PCB amount.
4. Does overtime affect PCB?
Generally yes, if the overtime payment forms part of taxable remuneration.
5. Does a bonus affect PCB?
Yes. Bonuses are generally treated as additional remuneration and may increase the PCB deducted for that payroll period.
6. Can Form TP1 reduce PCB?
Potentially yes. Eligible tax reliefs declared through Form TP1 may reduce Monthly Tax Deduction (PCB)
7. Does Form TP3 reduce PCB?
Not necessarily. Form TP3 helps payroll calculate PCB more accurately based on the employee's cumulative employment income.
8. Why is my PCB different from last month?
Common reasons include salary changes, bonus payments, overtime, additional remuneration, tax relief updates, unpaid leave or previous employment information.
9. Is PCB the same as my final income tax?
No. PCB is a monthly withholding mechanism. Your final tax liability is determined after your annual income tax return is assessed by LHDN.
10. Do all allowances affect PCB?
No. Some allowances are taxable, while others may qualify for tax exemption subject to LHDN rules.
Key Takeaway
Monthly Tax Deduction (PCB/MTD) helps employees pay income tax progressively throughout the year. The amount deducted is influenced by taxable remuneration, additional remuneration, tax relief declarations, previous employment information and other payroll changes. By keeping employee information up to date and following the latest LHDN PCB Specification, employers can process payroll accurately and help minimise tax adjustments during annual income tax filing.