PayrollPanda calculates the PCB based on a formula set by LHDN for payroll softwares. Our calculations are fully compliant with LHDN specifications and we can confirm that PayrollPanda is LHDN-approved.
While the formula is complicated it can be simplified as follows:
- Annual taxable income = Previous months taxable income + (Recurring current month taxable income + Non-recurring current month taxable income) + Recurring current month taxable income * Number of months remaining in the year
- Annual taxable income - Deductions = Annual chargeable income
- The annual tax is then calculated based on the annual chargeable income (tax rates)
- PCB = (annual tax - PCB already paid)/Number of months remaining
This simplified formula allows us to answer some frequently-asked questions below:
(Note: in the following examples EPF and SOCSO/EIS deductions are being ignored to make the examples easier to understand.)
1. Why do I need to enter my previous payslip data?
Looking at step 1 of the formula we see that previous payslip data is included in the calculation of taxable income. If you do not put in your previous payroll data then your PCB will not be correctly calculated. Both current employment and previous employment payslip data of the current year must be entered for accurate PCB calculations. Please refer to How do I enter previous payslip information to find out how to enter previous payslip data.
Example for current employment data:
Nick has been working at his company since 2021, earning RM6,000 monthly. In November 2022, his company switches to PayrollPanda but his payroll officer does not enter his payslip data for January to October 2022 in his profile. As a result, in November payroll, his annual taxable income will only be calculated as RM12,000 (RM6,000 current month and RM6,000 future months), which is below the PCB threshold, resulting in incorrect PCB of RM0. Even if the annual chargeable is above the PCB threshold without the previous income, the PCB is likely to be underpaid since the higher the income level, the higher the tax rate.
Example for previous employment data:
Sunita joined the company in August 2022 with a monthly salary of RM4,000. She was previously employed in another company, but her new employer does not ask her to fill in form TP3 to obtain her previous income and contribution data for January to July 2022. As a result, her annual taxable income in August PCB calculation is calculated as RM4,000 (current month) + RM4,000 * 4 (future months) = RM20,000, which is below the PCB threshold. If Sunita had not been employed during the previous months of 2022, PCB of RM0 would be correct. To find out how to fill in form TP3 and enter the data in PayrollPanda, please refer to How to fill in the Previous Employment Payslip Information Form.
2. Why do employees with the same previous and current income have different PCB calculated?
From step 2 of the formula, we can see that personal deductions are taken into account in the PCB calculation and those deductions can vary depending on the employee's personal details. Please read What tax deductions and rebates can be claimed in the year 2023? article for more details on available tax deductions.
Example:
- Amin is single and has no children. He has been earning RM4,000 monthly since the start of 2022.
- Rayzal is married to a non-working spouse, and has five children under 18. He has also been earning RM4,000 monthly since the start of 2022.
When running payroll, PCB will appear only for Amin.
Amin’s chargeable income will be calculated as 12 * 4,000 - 9,000 (personal deduction) = RM39,000 which is above the PCB threshold.
Rayzal’s chargeable income on the other hand will be calculated as 12 * 4,000 - 9,000 (personal deduction) - 10,000 (5 x 2,000 child deduction) - 4,000 (spouse deduction) = RM 25,000 which is below the PCB threshold.
3. What is the difference between recurring and non-recurring (additional) items?
From step 1, we can see that recurring items are included in future months to calculate the annual taxable income, while non-recurring (additional) items are included only for the current month. As a result, the PCB may be underpaid if monthly-paid items are added as additional instead of recurring (please refer to When do I select certain payroll items as recurring article to find out when and how to add payroll items as recurring).
Example:
Aiman earns RM4,000 a month with a recurring attendance allowance of RM500.
In January payroll, his annual taxable income will be calculated as (4,000 + 500) + (4,000 + 500) * 11 = RM54,000.
If instead the attendance allowance is added as additional the annual taxable income will be calculated as (4,000 + 500) + (4,000) * 11 = RM48,500.
4. Why is my PCB higher if I underpaid PCB in previous months?
Based on step 4 of the formula, if the previous PCB was underpaid, the PCB will be increased for current and future months of the year.
Example:
If the annual tax is RM1,200, the PCB in January payroll will be calculated as 1,200 / 12 = RM100.
In February payroll, the PCB will be calculated as (1,200 - 100) / 11 = RM100. But let's say we underpaid the PCB in January and only paid RM67, the February PCB will be calculated as (1,200 - 67) / 11 = RM103.
Inversely, if the previous PCB was overpaid, the PCB will be reduced for current and future months of the year.