CP500 Tax Instalments: Bi-Monthly Payments, CP502 & the 30% Rule

Who gets a CP500, and why

CP500 is issued under Section 107B of the Income Tax Act 1967. It applies to individuals whose income is not covered by monthly tax deduction — typically sole proprietors and partners, freelancers and gig workers, commission-only agents, and landlords with meaningful rental income. If LHDN has assessed you before and expects a repeat, it will normally issue a CP500 for the following year.

The estimate on the notice is not something you proposed. LHDN generates it, usually by reference to the tax assessed on your last return, and sends it out around the end of February of the year of assessment. You do not get to ignore it because you disagree — the instalments become due whether or not this year's income actually matches last year's.

If you have both a salary and a side business, PCB covers only the employment part. A CP500 can still be issued for the business income on top of it, and the two run in parallel.

• First year of business — if no CP500 was issued, you have no instalment obligation for that year. But nothing is being collected either, so the entire tax bill lands in one lump at filing. Set the money aside yourself.
• New sources such as rental only trigger a CP500 once they show up in an assessed return, so the scheme usually starts a year behind your actual income.

The six instalment months

The CP500 splits the estimated tax into six equal bi-monthly instalments. Each one is payable by the 30th of its month, and the cycle deliberately runs past year-end into January.

CP502: revising the estimate — the 30 June deadline

If the CP500 figure is clearly wrong — your business shrank, you lost your biggest client, a tenant moved out, or you closed the business entirely — you can apply to vary it using Form CP502. The application must reach LHDN on or before 30 June of that year of assessment. Miss that date and the original instalments stand for the whole year, no matter what happens to your income afterwards.

This is the single most-missed deadline in the scheme. Because the notice arrives in February and the first payment is due in March, most people file it away after paying instalment one and only think about the amount again in November, by which point the revision window has been shut for months.

• Revise downward when income has genuinely fallen — but do not lowball it, because the 30% rule below punishes an estimate that undershoots the final tax.
• Revise upward when you have had a strong year. This is voluntary and there is no penalty for not doing it, but it spreads the bill instead of leaving a large balance due in June, and it protects you from the under-estimation penalty.
• Ceasing business does not cancel the notice by itself. Apply on CP502 with supporting evidence; unpaid instalments keep accruing the late-payment penalty until LHDN varies the assessment.

The 30% rule and the 10% under-estimation penalty

Section 107B(3) sets a safe harbour. Compare the tax finally payable on your assessment against what your instalments (as revised, if you filed a CP502) came to. If the shortfall exceeds 30% of the final tax payable, a penalty of 10% is imposed on the part of the shortfall that exceeds that 30% — automatically, without any notice or hearing.

In plain terms: your instalments need to cover at least 70% of your eventual tax bill. Anything less and the excess shortfall is taxed an extra 10%.

Worked example. Your final tax payable for the year is RM30,000. Your six instalments totalled RM12,000, so the shortfall is RM18,000. The 30% threshold is 30% × RM30,000 = RM9,000. The shortfall exceeds it by RM18,000 − RM9,000 = RM9,000, and the penalty is 10% of that — RM900, on top of the RM18,000 you still owe.

Paying late costs another 10%

This is a separate penalty from the one above. Under Section 107B(4), any instalment not paid by its due date is increased by 10% of the unpaid amount. It applies per instalment, so skipping several months compounds into a real sum, and it is imposed even if you eventually pay everything before the filing deadline.

Pay through ByrHASiL (byrhasil.hasil.gov.my) by FPX or card, or at an appointed bank, selecting the CP500 instalment payment type and quoting the reference exactly as printed on the notice. Payments applied to the wrong payment type are a common cause of instalments showing as unpaid while your money sits elsewhere in your tax account — check your ledger in MyTax after the first payment of the year rather than assuming it landed correctly.

How instalments settle against your Form B

CP500 instalments are not a separate tax. They are credits against the final liability computed on your return. When you file your Form B (business income, due 30 June), the tax computed is reduced by everything you paid under the CP500, and only the balance is payable — by that same 30 June deadline.

If the instalments exceeded your final tax — a bad year following a good one — the excess is refundable. Refunds are processed after the return is assessed, so make sure your bank account details in MyTax are current or the money will sit there.

Remember that the January instalment falls after the year has closed but still counts toward that earlier year of assessment. It is easy to pay it and mentally file it under the wrong year; the notice states the year of assessment it belongs to.

A practical routine

• Watch for the notice in late February and diarise all six payment dates immediately, including the January one.
• In May, run your half-year numbers through the income tax calculator below and project the full-year tax. If the CP500 total is under 70% of that projection, file a CP502 before 30 June.
• Keep the instalment money in a separate account. Business income is lumpy and the instalment is due whether or not this month was a good one.
• Keep every payment receipt and reconcile against your MyTax ledger before filing, so the credits on your Form B match what LHDN has recorded.
• If you genuinely cannot pay an instalment, contact your LHDN branch before the due date to discuss an arrangement — the 10% is imposed automatically once the date passes.

Important caveats

This guide covers the CP500 scheme for individuals under Section 107B. Companies use a different regime entirely — CP204 estimates with monthly instalments and their own revision windows — and the rules are not interchangeable.

Penalty rates, forms and deadlines are set by law and by LHDN operational practice, and can change. The figures in the worked examples are illustrations of the arithmetic, not your liability. Confirm your own instalment amounts, due dates and payment references against the CP500 notice itself and your MyTax account at mytax.hasil.gov.my, and speak to a licensed tax agent if a material penalty is in prospect.