How Does Monthly Tax Deduction Work In Malaysia?

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After all the calculation, and if you are still shocked with the amount of tax  you would have to pay, don’t worry. You may be eligible to get an income tax return after the Monthly Tax Deduction (MTD), also known as PCB.

MTD is a mechanism in which employers deduct monthly tax payments from the employment income of their employees. Employers rely on an employee’s personal data submitted to their Human Resource (HR) department to compute monthly MTDs.

Therefore, these monthly deductions are net of personal relief, relief for spouse with no income, child relief and zakat payments.

MTD as final tax

Starting from Malaysia income tax Year of Assessment 2014 (tax filed in 2015), taxpayers who have been subjected to MTD are not required to file income tax returns if such monthly tax deductions constitute their final tax. However, they should still file if they want to reduce their taxable income through reliefs. This is more a convenience factor to allow those who did not file to not have negative records.

However, three criteria must be met:

• Such employee must receive their employment income prescribed under Section 13 of the Income Tax Act 1967;
• MTD of such employee must be made under the Income Tax (Deduction from Remuneration) Rules 1994; and
• Such employee must serve under the same employer for a period of 12 months in a calendar year (i.e. Jan 1 – Dec 31).

To ensure your MTD is your final tax, you may need to request for other reliefs to be deducted. To do so, you will need to submit Income Tax Form TP1, where you can state other tax reliefs that you are entitled to, to facilitate the computation of MTD.

Other tax reliefs you can include in Income Tax Form TP1

Reliefs that can be included in the form 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).

Here’s the full list of income tax relief 2023 Malaysia.

Once you have submitted the form to LHDN and a copy to your employer, your employer will have to remit the amount deducted to Inland Revenue Board Malaysia (IRBM), also known as LHDN, every month in accordance with Income Tax (Deduction and Remuneration) Rules 1994.

If your employer deducts MTD from your salary every month, over the course of 12 months – you may find yourself overpaying your taxes when you file it.