PETALING JAYA: Taxpayers with both employment income and additional sources of income such as rent, interest and royalties are among those eligible for the government’s CP500 penalty exemption, according to the Inland Revenue Board (LHDN).
It said the exemption announced by the Prime Minister on Jan 5 was not solely intended for first-time recipients of CP500 notices.
Instead, it applies to eligible individuals who derive both employment income and non-employment income, resulting in the issuance of a CP500 instalment notice.
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“Eligible taxpayers will not be subject to penalties for the Year of Assessment 2026 for failing to make CP500 instalment payments according to the prescribed schedule,” LHDN said in an email reply to The Star yesterday.
It said the measure was introduced to facilitate taxpayers’ transition and understanding of the CP500 mechanism, rather than penalise them during the transition period.
It stressed that eligibility for the exemption depends on the type of income a taxpayer receives and not whether he or she is receiving a CP500 notice for the first time.
LHDN said CP500 was originally introduced for individuals with business income or other taxable income outside their salaries, such as rental, interest and royalty income.
The system allows taxpayers to pay tax in instalments throughout the year instead of settling a larger amount when filing their income tax returns.
LHDN noted that the exemption does not cover taxpayers whose income consists entirely of business income, rental income or other non-salaried income that has traditionally been subject to CP500.
“This applies regardless of whether they are first-time CP500 recipients or have previously been issued CP500 notices,” it said.
The clarification by LHDN comes after questions were raised over the scope of the exemption following reports that taxpayers who do not fully pay their CP500 instalments, make late payments or pay less than the stipulated amount, may still face a 10% penalty under Section 107B(3) of the Income Tax Act.
LHDN said the exemption was introduced to help eligible salaried taxpayers with additional income adjust to the CP500 system during the transition period.
