Tax Estimation & Instalment Scheme: Key Rules and Practical Insights

Date: 15 April 2026

What is Tax Estimation?

Every company is required to submit an estimate of its tax payable for each year of assessment (YA) using the prescribed Form CP204 to the Director General of Inland Revenue (DGIR). This must be done at least 30 days before the start of the basis period for that YA.

Example 1:

Company A has a financial year ending 31 Dec. Its basis period for YA 2026 is from 1 Jan 2026 to 31 Dec 2026. Therefore, it must submit its tax estimate by 1 Dec 2026.

For companies commencing operations during a YA, the tax estimate must be submitted within 3 months from the date operations begin.

Example 2: Company B begins operations on 1 February 2026 and adopts a financial year ending 31 December 2026. Its basis period is from 1 February 2026 to 31 December 2026. The tax estimate must be submitted by 30 April 2026.

Revised Estimate of Tax Payable

A revised estimate of tax payable may be submitted to the Inland Revenue Board (IRB) in the 6th, 9th, and 11th months of the basis period for a year of assessment. When revision is made, the remaining monthly instalment amount will corresponding change too.

Quantum of Estimated Tax Payable

Generally, the estimated tax payable should not be less than 85% of the preceding year’s estimate or revised estimate.

This  85% rule requires a company’s initial CP204 estimated tax payable to be at least 85% of the preceding year’s estimate (or revised estimate), serving as a baseline to prevent underestimation; however, this estimate may be revised in the 6th, 9th, and 11th months to reflect actual business performance, even below the 85% threshold.

Penalty for Under-Estimation of Tax

To ensure a reasonable level of tax is collected upfront, a penalty will apply where the actual tax payable for a year of assessment exceeds the estimated tax payable (or revised estimate, if applicable) by more than 30%. In such cases, a penalty of 10% will be imposed on the amount exceeding the 30% threshold.

Submission Method

Submissions must be made via:

• Tax Agent e-Filing System, or

• MyTax

Monthly Instalments

The estimated tax payable submitted must be settled through equal monthly instalments, based on the number of months in the basis period for the relevant year of assessment (YA). 

For example, Company ABC Sdn Bhd has a basis period from 1 January 2026 to 31 December 2026 (12 months) and submits an estimated tax payable of RM48,000 via Form CP204. The company is required to pay this amount in 12 equal monthly instalments of RM4,000 each throughout the year.

Payments must be made by the 15th of every month via the LHDN portal, typically starting from the second month of the company's financial year.

Upon any revision of tax estimation, the remaining monthly instalments will be adjusted accordingly.

These instalments are advance tax payments based on estimated tax, and upon submission of the company’s tax return, they are automatically offset against the actual tax payable. Any shortfall is payable, any excess is refundable or carried forward.

Non-Compliance Non-compliance with the above constitutes an offence under the Income Tax Act and may result in fines and/or imprisonment.

Commentary

No one can perfectly predict the future - neither business owners nor tax accountants. That’s why tax estimation often feels uncertain and confusing for many clients. A common question is: how do we reasonably estimate next year’s tax payable when the outlook is still unclear?

We have observed that some clients have used a quick estimation approach by taking the previous year’s tax payable and adjusting it based on the expected growth rate of the business.

Example: Company XYZ’s tax payable for YA 2023 was RM50,000. For YA 2024, the company expects its business to grow by 20%. Based on this, the estimated tax payable would be RM50,000 × 120% = RM60,000.

More conservative clients may build in a buffer to avoid under-estimation, resulting in a slightly higher tax estimate.

While this method is simple and convenient, it may overlook key factors such as changes in profit margins, tax adjustments, capital allowances, and one-off items, which can result in inaccurate estimates.

For larger companies with significant tax exposure and a higher risk of penalties due to under-estimation, it is advisable to closely monitor income and tax payable through regular financial and tax projections. This helps align tax instalments with actual tax liability, avoiding both excessive overpayment and underestimation.

Please contact our team to learn how StanleyCo can assist in managing your tax estimates and exposure effectively.