Malaysia Tax Penalty for Late Filing and Under-Declaration: What LHDN Can Actually Do

Miss the LHDN filing deadline and you are looking at an automatic 10% surcharge on any unpaid tax. Under-declare your income and the penalty can reach 200% of the tax shortfall, or 300% if LHDN suspects deliberate evasion. Understanding exactly what the Inland Revenue Board of Malaysia can do, and how to fix a mistake before they find it, can save you thousands of ringgit.

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The two separate problems: late filing vs. under-declaration

Many Malaysians confuse these. They are governed by different sections of the Income Tax Act 1967 and carry different consequences.

• Late filing means you missed the deadline to submit your return form (Form BE, B, or equivalent), regardless of whether you owed any tax.
• Under-declaration means you submitted a return but reported income, reliefs, or deductions incorrectly, resulting in less tax being paid than is actually due.

You can be penalised for one, the other, or both at the same time.

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Late filing: what Section 112 says

Under Section 112 of the Income Tax Act 1967, failing to file your tax return by the due date is an offence. The standard deadlines for Year of Assessment (YA) 2025 are:

Taxpayer Category	Form	e-Filing Deadline
Individual, employment income only	Form BE	15 May 2026
Individual with business income	Form B	30 June 2026
Company (calendar year)	Form C	7 months after financial year end

If you file late, LHDN can:

1. Impose a fine of RM200 to RM20,000 on conviction in court.
2. Impose a 10% late payment surcharge on any balance of tax not settled by the due date. This is separate from the filing offence and applies even if you filed on time but paid late.
3. Add a further 5% surcharge if the 10% balance remains unpaid 60 days after the original due date.

In practice, LHDN typically imposes the 10% surcharge administratively and escalates to prosecution only for persistent or wilful non-compliance. A first-time missed deadline with prompt regularisation is usually resolved with the surcharge alone.

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Under-declaration: what Sections 113 and 114 say

This is where penalties get steep.

Section 113: Incorrect returns (honest mistake or negligence)

If LHDN audits your return and finds that you understated income or overstated reliefs, the penalty under Section 113(2) is:

• A fine of RM1,000 to RM10,000, plus
• An additional penalty equal to the tax undercharged (effectively 100% of the shortfall).

The total cost can therefore be double the original underpaid tax.

Section 114: Wilful evasion

If LHDN concludes that the under-declaration was deliberate, concealed income, falsified records, or knowingly making incorrect claims, Section 114 applies:

• A fine of RM1,000 to RM20,000, or
• Imprisonment for up to 3 years, or both, plus
• A penalty of 3 times the tax undercharged (300% of the shortfall).

This level is reserved for fraud-like behaviour. LHDN does prosecute, particularly when the amounts are large and the falsification is systematic.

Summary of penalty tiers

Situation	Governing Section	Maximum Penalty
Late filing (no tax due)	s.112	Fine RM200–RM20,000
Late payment of tax	s.103	10% surcharge, then additional 5%
Incorrect return (negligence)	s.113	100% of tax undercharged + fine
Wilful evasion	s.114	300% of tax undercharged + jail
Tax estimation shortfall >30% (companies)	s.107C	10% on the excess

Source: LHDN Offences, Fines and Penalties (Income Tax Act 1967, Act 53).

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What triggers an LHDN audit in 2025 and 2026

LHDN does not audit randomly. Its audit selection increasingly relies on data analytics that cross-reference your return against external records. Common triggers include:

Data mismatches. Since 2024, e-invoice data, EPF contribution records, and banking information shared under the Common Reporting Standard (CRS) flow into LHDN’s systems. If declared income is materially lower than what these sources show, a flag is raised automatically.

Large deduction claims. Unusually high business expenses relative to revenue, or reliefs that hit the maximum every year without variation, attract scrutiny.

Cash-heavy businesses. Restaurants, retail, and professional services operating substantially in cash are a standing audit priority.

Lifestyle indicators. Expensive property purchases or investment activity inconsistent with declared income can trigger a lifestyle audit.

Prior audit history. A previous adjustment means your returns receive closer attention for several years afterward.

The safest posture is to assume your return will be cross-checked against EPF, bank, and e-invoice data. Any gap needs to be explainable.

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Voluntary disclosure: fix it before LHDN finds it

The most important rule: penalties are much lower if you come forward first.

LHDN has run several programmes. The Special Voluntary Disclosure Programme 2.0 (SVDP 2.0) in 2023 offered reduced income tax penalties. A Stamp Duty Voluntary Disclosure Programme ran from January to June 2026 with full penalty waivers for qualifying instruments.

Even outside a formal programme, LHDN’s standard practice is to apply a reduced penalty rate, typically 10% to 15% of additional tax, when a taxpayer self-discloses before any audit contact, compared to the statutory 100% or more if discovered during an audit.

The critical condition: voluntary disclosure must happen before LHDN initiates contact about that assessment year. Once an audit letter has been issued, the window for reduced-penalty self-disclosure closes.

Steps to regularise voluntarily:

1. Identify the year(s) and amounts involved.
2. Prepare revised computation with supporting documents.
3. Submit through the MyTax portal or visit a LHDN branch to disclose and pay the additional tax plus any agreed reduced penalty.
4. Keep acknowledgement records.

If the amounts are significant, engaging a registered tax agent or tax lawyer before disclosure is worth the cost, as the framing of the disclosure affects the penalty category applied.

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The 10% late payment surcharge in detail

The 10% surcharge is the most common penalty Malaysians encounter. Here is exactly how it works:

• It applies to the balance of tax not paid by the due date (30 April for non-business individuals, 30 June for individuals with business income, using e-filing extended deadlines).
• It is computed on the outstanding balance, not the full tax liability.
• If the 10% surcharge itself is not paid within 60 days, a further 5% surcharge on the unpaid amount is added.
• These surcharges are collected as if they were part of the original tax debt.

Example: RM5,000 owed, deadline missed. LHDN adds RM500 (10%). Still unpaid 60 days on: LHDN adds RM275 (5% of the RM5,500 outstanding). Total owed: RM5,775, before any court fine.

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Your rights during an LHDN audit

LHDN has broad powers, but taxpayers retain procedural rights:

• You may be represented by a tax agent or lawyer throughout the process.
• You can appeal any additional assessment to the Special Commissioners of Income Tax within 30 days of the notice.
• Administratively imposed surcharges can be appealed or negotiated with legitimate grounds (medical emergency, employer payroll error).

Responding promptly to any audit letter is essential. Ignoring correspondence can lead to salary garnishment, bank account freezing, or a travel ban.

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Key takeaways

• Missing the filing deadline triggers a fine under Section 112 and a 10% late payment surcharge on any unpaid tax.
• Under-declaring income, even unintentionally, can result in penalties equal to 100% of the shortfall plus a court fine.
• Deliberate evasion under Section 114 carries up to 300% of the shortfall plus potential imprisonment.
• LHDN now cross-checks returns against EPF data, bank CRS reports, and e-invoice records, making undisclosed income easier to detect.
• Voluntary disclosure before any LHDN contact dramatically reduces the penalty, often to 10% to 15% of the additional tax.
• Respond to any audit letter immediately. Delays only add surcharges and enforcement risk.

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Frequently asked questions

What is the penalty if I have never registered with LHDN but should have? Failure to notify LHDN of chargeability (i.e., that your income exceeds the filing threshold) is also an offence under Section 112. The same fines apply: RM200 to RM20,000. LHDN can also back-assess you for up to six years of unpaid tax plus surcharges. Registering and filing late is always better than not registering at all.

Can LHDN go back more than 5 years? For ordinary assessments, LHDN can raise an additional assessment within five years of the end of the relevant year of assessment. However, if fraud or wilful default is involved, there is no time limit. LHDN can assess any year, going back as far as records exist.

Will LHDN penalise me if my employer made a payroll error that caused under-declaration? Your obligation is to file an accurate return regardless of employer errors. If your EA form is wrong, you should report the correct income. If LHDN finds a discrepancy, the penalty falls on you as the taxpayer, though you may have a civil recourse against the employer. The safest approach is to cross-check your EA form against your payslips before filing.

I missed the deadline by one day. Will LHDN really penalise me? LHDN’s system records the date of submission. A one-day delay is technically an offence, but in practice LHDN focuses enforcement resources on significant delays or non-filers. The 10% surcharge on unpaid tax still applies automatically from the day after the due date, however small the balance. File as soon as possible even if late.

Does the 10% surcharge apply even if I have a refund coming? No. The surcharge is computed on the balance of tax payable. If you have overpaid through PCB (Monthly Tax Deduction) and are entitled to a refund, there is no balance due and therefore no surcharge, even if you file late. The late filing offence (potential fine) still technically applies, but the financial surcharge does not.

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For more context on how income tax is calculated before any penalty applies, see Malaysia income tax for beginners. For property-related tax obligations, see Real Property Gains Tax (RPGT) in Malaysia.