LHDN Income Tax Penalties: Late Filing and Payment Fines Explained (2026)

LHDN Income Tax Penalties: Late Filing and Payment Fines Explained (2026)

Most business owners only look up LHDN penalties after missing a deadline, not before. The problem is that income tax penalties in Malaysia are not a single fixed number. They vary depending on the offence, from late filing to deliberate tax evasion. This guide breaks down each type of LHDN penalty under the Income Tax Act 1967, the actual rates, and what to do if your company has already missed a deadline.

Penalty for Late Filing of Income Tax Return (Section 112(1))

Failing to submit your Income Tax Return Form without reasonable excuse is an offence under Section 112(1) of the Income Tax Act 1967. The penalty is a fine of between RM200 and RM20,000, and/or imprisonment of up to 6 months. This is separate from any tax still owed.

Penalty for Late Payment of Income Tax (Section 103(3))

Late payment is treated differently. Under Section 103(3), any tax balance unpaid after April 30 or May 15 (non-business individuals) or June 30 or July 15 (business individuals) incurs a 10% increase on the outstanding amount. If it remains unpaid 60 days after that first increase, LHDN imposes an additional 5% surcharge on the remaining balance.

Penalty for Incorrect or Negligent Returns (Section 113(1)(a))

If a filed tax return is found to be inaccurate, whether from under-reporting income or omitting material information, Section 113(1)(a) allows for a fine of between RM1,000 and RM10,000, plus 200% of the tax undercharged. This penalty is heavier than late filing because it concerns the accuracy of the information, not just timing.

Penalty for Wilful Tax Evasion (Section 114(1))

This is the most serious offence. Deliberate tax evasion under Section 114(1) carries a fine of RM1,000 to RM20,000, imprisonment of up to 3 years, and an additional 300% of the tax undercharged. The difference from Section 113 is intent. LHDN must prove the offence was committed deliberately, not through miscalculation or negligence.

Penalties Related to e-Invoicing and Withholding Tax

Since the phased rollout of e-Invoicing, Section 120(1) also provides for a fine of RM200 to RM20,000 and/or imprisonment of up to 6 months for failing to issue an e-invoice or self-billed invoice as required. We cover e-Invoice requirements in more detail in a separate article.

For companies making payments to non-residents, failing to deduct and remit withholding tax under Section 107D can make the company liable for the tax that should have been withheld, plus an additional 10% of that amount. We have a separate guide on withholding tax that covers this topic further.

Summary of LHDN Penalties by Offence

Note: figures above are based on the Income Tax Act 1967. Actual penalties are subject to LHDN/court discretion on a case-by-case basis.

How to Avoid Further LHDN Penalties After a Missed Deadline

If your company has already missed a filing or payment deadline, the first step is to settle it as quickly as possible. Additional penalties, such as the 5% surcharge after 60 days, grow the longer the amount remains outstanding. LHDN allows written appeals against penalty increases through the relevant HASiL Collection Unit, though the penalty must still be paid while the appeal is pending.

Avoid repeat issues by keeping financial records updated throughout the year rather than only before tax season. This also makes tax computation easier and reduces the risk of inaccurate returns that could trigger a Section 113 penalty.

Further Reading

• Corporate Tax Rate in Malaysia: What Business Owners Need to Know
• Withholding Tax Malaysia: What Business Owners Need to Know
• Inland Revenue Board of Malaysia (official site)

How SASCO Can Help

SASCO helps companies keep organised financial records and ensure tax returns are filed accurately and on time, so the risk of the LHDN penalties above is avoided from the start. If your company has already received a penalty notice, we can help review it and plan the next compliance steps.

Contact SASCO today to keep your company’s tax filing and payment fully compliant and avoid LHDN penalties.

Frequently Asked Questions About LHDN Penalties

How much is the penalty for late filing of company income tax?

Under Section 112(1) of the Income Tax Act 1967, failing to file without reasonable excuse can result in a fine of RM200 to RM20,000, and/or imprisonment of up to 6 months, separate from any tax still owed.

What is the difference between late payment and late filing penalties?

Late filing (Section 112) is the offence of not submitting a return, while late payment (Section 103(3)) is failing to settle tax that has already been assessed. Late payment incurs a 10% increase on the outstanding balance, with an additional 5% surcharge if still unpaid after 60 days.

Can LHDN penalties be appealed or reduced?

Yes. Taxpayers can submit a written appeal to the relevant HASiL Collection Unit to challenge a penalty increase. However, the penalty must still be paid while the appeal decision is pending.

Is the company penalised separately from its directors or owners?

Generally, the penalty is imposed on the entity responsible for filing, meaning the company itself as the taxpayer. However, directors can also be investigated if negligence or wilful evasion is linked to their personal actions.

How does the e-Invoice penalty relate to regular income tax penalties?

Both are provided for under the same Income Tax Act 1967, just under different sections. The e-Invoice penalty (Section 120(1)) is specific to failing to issue an e-invoice or self-billed invoice, separate from the filing (Section 112) or payment (Section 103) penalties for annual income tax.

If my company is a first-time offender, is the penalty automatic?

Penalties such as the 10% late payment increase are usually applied automatically by LHDN’s system regardless of compliance history. For offences requiring investigation, such as Section 113 or 114, LHDN has discretion to consider factors including compliance history before a final decision.