Monthly Tax Deduction (MTD) or Potongan Cukai Berjadual (PCB) means that your employer will automatically deduct a certain amount from your salary every month and pay tax on your behalf, which goes towards paying your tax for the year. It doesn’t matter if you actually not within the annual income range required to pay tax. Your income will be deducted as long as your gross income for 1 month is at certain level (including overtime etc)
This deduction is separate from your Employees Provident Fund (EPF) deduction as that goes towards your Personal Pension and is deducted first. SOCSO and other deductions are not considered under the MTD system. The MTD is then calculated from your Gross Salary minus EPF deduction of up to RM6,000 per year. If you sum up the total MTD for the year, if no deductions are taken into account then the figure will be very close to your actual tax expense for the year, minus or plus a few ringgit here and there.
Some MTD examples:
(1) In 2010, Roronoa Zoro, a single man with no children, earned a gross salary of RM3,100/month. After deducting his EPF contribution of RM330/month to give his MTD salary of RM2,759, his MTD is to be deducted from his salary by the company is RM31/month.
| Roronoa Zoro | Gross Salary | MTD Salary | MTD Deduction | Actual Tax Expense | Paid too much / (little) |
| Monthly Amounts | RM3,100.00 | RM2,759.00 | RM31.00 | RM30.21 | RM0.79 |
| Total for 2010 | RM37,200.00 | RM 33,108.00 | RM372.00 | RM362.56 | RM9.44 |
(2) In 2010, Hildegarde, a single woman with no children, earned a gross salary of RM5,000/month. Her EPF contribution is RM550/month but under the 2010 tax rules only a maximum of RM500/month or RM6000/year can be used to be deducted from gross salary so her MTD salary will be RM4,500/month. Hildegarde’s MTD will then be calculated to be RM224/month.
| Hildegarde | Gross Salary | MTD Deduction | Actual Tax Expense | Paid too much / (little) | |
| Monthly Amounts | RM5,000.00 | RM4,500.00 | RM224.00 | RM227.08 | RM(3.08) |
| Total for 2010 | RM60,000.00 | RM54,000.00 | RM2688.00 | RM2725.00 | RM(37.00) |
In Example (1) and (2), the difference between MTD deductions paid to the tax office (LHDN) by the employer and the actual tax payable by Roronoa Zoro and Hildegarde is very small.
Typically your employer will use some standard tables in order to calculate the MTD, but other than marital status and number of children there are no adjustments for any additional tax reliefs or deductions. This is why your employer may have been overpaying for tax on your behalf.
Warning! The converse may be true, as you might have been paid bonuses and other Benefits-in-Kind (BIK) such as allowances and incentives some of which are subject to income tax. This causes your MTD to be much less than your tax expense and your employer may have been underpaying for tax on your behalf.
Filed under: Financial Planning, Tax
