How is PCB calculated by the app?

The app calculates PCB based on a formula set for payroll softwares by the LHDN. Our app's calculations are fully compliant with their specifications and we can confirm that PayrollPanda is LHDN approved

While the formula is complicated it can be simplified as follows:

  1. 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
  2. Annual taxable income - Deductions = Annual chargeable income
  3. Total yearly tax is then calculated on the annual chargeable income
  4. PCB = (Total yearly 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 deductions are being ignored to make the examples easier to understand).


1. Why do I need to put in 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 the app will incorrectly calculate your PCB.

Example:

Nick has been working at his company since the beginning of 2020, earning RM6,000 monthly.

In November 2020, his company switches to PayrollPanda but his payroll officer does not add his previous payslip data, and only inputs a salary of RM6,000. At the end of November when the app tries to run payroll it will estimate his total yearly income at only RM12,000 and hence will calculate his PCB for November as being RM0. This is, of course, incorrect.


2. Are personal deductions taken into account?

From step 2 of the formula we can see that personal deductions are taken into account.

Example:

  • Amin is single and has no children. He has been earning RM4,000 monthly since the start of 2020.
  • Rayzal is married to a non-working spouse, and has two children. He has also been earning RM4,000 monthly since the start of 2020.

When both these employees are entered into the app only Amin will be asked to pay PCB.

Amin’s chargeable income will be calculated at 12 * 4,000 - 9,000 (personal deduction) = RM39,000 - which puts him into a tax paying income bracket.

Rayzal’s chargeable income on the other hand will be calculated as 12 * 4,000 - 9,000 (personal deduction) - 2,000 (child deduction) - 2,000 (child deduction) - 4,000 (spouse deduction) = RM 31,000. This means his chargeable income is below the PCB threshold and hence his PCB is RM0.


3. What is the difference between recurring and non-recurring items?

From step 1 we see that recurring items are considered to continue into the following months, while non-recurring items are not.

Example: Aiman earns RM4,000 a month with a recurring attendance allowance of RM500.

When the app calculates Aiman’s provisional annual income (assuming payroll was run for the month of January) it does so like this: (4,000 + 500) + (4,000 + 500) * 11 = RM54,000.

If instead the attendance allowance is not recurring the app will calculate his provisional annual income this way: (4,000 + 500) + (4,000) * 11 = RM48,500.


4. What happens if I overpay/underpay PCB?

Looking at step 4 of the formula - if the person overpays or underpays PCB, the PCB for the following months will be automatically adjusted.

Example: Anne started a new job in January 2020. She is single and has no children. She is paid RM4,000 a month.

This means that her total annual tax should be RM900. If her employer correctly deducts PCB every month her monthly PCB should be 900/12 = RM76.70.

However, in the month of January, her employer forgets to deduct PCB from her payslip. This means that in February her PCB will then be 900/11 = RM83.65 as there was no PCB payment in January.

This figure remains unchanged in the following months if there are no changes to her salary, e.g.

For March PCB = (1300 - 83.65)/10 = RM83.65

For April PCB = (1300 - 83.65 - 83.65)/9 = RM83.65

etc.


This help article was compiled for version 0.32.1 of app.payrollpanda.my

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