How PCB (MTD) is calculated in Malaysia

PCB is the hardest number on a Malaysian payslip to reproduce by hand, because it is not a function of one month's pay. It is a slice of the employee's projected annual tax, recomputed every month from what has already happened. This is how LHDN's computerised calculation method actually works.

Figures verified June 2026 against KWSP, PERKESO, LHDN and HRD Corp guidance. General information, not tax or legal advice.

PCB has memory

Potongan Cukai Bulanan, the Monthly Tax Deduction, is not a rate applied to a month's salary. Each month the calculation projects what the employee will earn for the whole year, works out the tax on that projection, subtracts the tax already deducted, and spreads the balance over the months that remain.

  income so far  +  this month  +  projected rest-of-year
        │              │                   │
        └──────────────┴───────────────────┘
                       ▼
        projected annual chargeable income  (P)
                       ▼
        projected annual tax  (bracket table)
                       ▼
        spread the still-owed tax over the months left
                       ▼
                  this month's PCB

Two consequences follow. Months must be computed in order, because month seven needs the totals from months one to six. And a mid-year correction changes every subsequent month, not just the one that was wrong.

The formula

LHDN expresses the monthly deduction as:

        (P − M) × R + B − (Z + X)
  MTD = ─────────────────────────    then round up to 5 sen
                 n + 1

Projected annual chargeable income is built from four income terms less the reliefs:

  P = [ prior months net + this month net
        + projected rest-of-year + additional pay ]
      − [ self + spouse + disabled + child
          + other deductions + SOCSO/EIS relief ]

M is the lower bound of the band P falls into, R the marginal rate for that band, and B the cumulative tax at M. B is published net of the individual rebate, which is why it is negative in the lowest bands and turns positive above RM35,000 of chargeable income. The annual tax is floored at zero, so a negative B cannot pay the employee.

The three categories

The employee's category decides which reliefs apply and which rebate column is used.

Reliefs applied automatically

The employer applies a fixed set of reliefs without the employee claiming anything. Everything else the employee wants to claim during the year goes through Form TP1, which the employer then feeds in as an other-deduction.

The RM4,000 EPF cap

The employee's EPF contributions are relieved up to RM4,000 a year, and the order in which that ceiling is consumed matters:

• Prior months take their relief first, up to the cap.
• The current month's normal EPF takes what is left.
• Any bonus in the month claims from the remainder after that, which in turn reduces the relief projected across the rest of the year.

That last point is the coupling most hand calculations miss. A bonus that eats the remaining cap pushes up the tax in every month that follows it, so the bonus month and the later months cannot be worked out independently.

The RM350 SOCSO and EIS restriction

Employee SOCSO and EIS contributions are relieved through the other-deduction terms, restricted to RM350 a year in total.

Unlike the EPF terms, this relief is never projected forward. Only what has actually been contributed year to date counts. Early in the year that relieves almost nothing and the relief grows as the year runs, which nudges the first months' PCB up and the later months' down. Projecting it the way EPF is projected would under-deduct every month before December.

Bonuses and additional remuneration

A bonus, commission or arrears payment is additional remuneration. It is not spread over the remaining months the way salary is. Instead it is taxed at the employee's marginal rate and charged in full in the month it is paid.

  annual tax including the bonus
  − annual tax without the bonus
  ─────────────────────────────────
  = PCB on the bonus, charged this month

The consequence employees notice is that a bonus can be taxed at a visibly higher effective rate than the same amount of salary. That is correct: it sits on top of projected annual income, so it is charged at the top marginal rate the employee reaches, not at their average rate.

Rounding and thresholds

• Normal monthly PCB is rounded up to the next 5 sen.
• Tax on additional remuneration below RM10 is not deducted at all.
• Zakat paid in the month reduces the deduction, and the result is floored at zero rather than going negative.

What changed for 2026

Nothing in the mechanics. LHDN's 2026 specification states in terms that there is no amendment to the MTD formula, and the bracket table and automatically applied reliefs are identical to 2025.

Budget 2026 did change some individual reliefs, such as raising the child relief for autism and learning disabilities from RM6,000 to RM10,000. Those are taxpayer-claimed reliefs that reach payroll only through Form TP1; they are not part of the automatic monthly deduction.

For year-end reporting, the PCB deducted across the year appears on the employee's Form EA and in the employer's CP39 submissions.