What is the penalty for understating income or giving incorrect information on a tax return?
On prosecution, s.113(1) carries a fine of RM1,000 to RM10,000 plus 200% of the tax undercharged. Wilful evasion under s.114 can mean 300%, a fine of RM1,000 to RM20,000 and up to three years in prison. LHDN can instead require a penalty of 100% of the tax undercharged under s.113(2).
LHDN's penalties table sets out the offences.
Understated income or incorrect information (s.113(1)(a) and (b)):
- Fine of RM1,000 to RM10,000, and
- a further sum of 200% of the tax undercharged.
Wilful evasion, or helping someone evade tax (s.114(1)):
- Fine of RM1,000 to RM20,000, imprisonment of up to three years, or both, plus 300% of the tax undercharged.
Advisers: assisting others in preparing returns that result in underpayment (s.114(1A)) carries a fine of RM2,000 to RM20,000, imprisonment of up to three years, or both.
Administrative penalty: instead of prosecution, the Director General may require a penalty under s.113(2) equal to the tax undercharged, which is 100%. Paying it bars prosecution on the same facts. The penalty can be abated or remitted (s.124(3)), which is how lower rates apply where a taxpayer discloses voluntarily or cooperates.
Ways to reduce exposure:
- Keep accurate books and supporting documents.
- Do not run personal costs through the company.
- Correct errors early.
These are maximums, not typical outcomes.
Legal basis
- Income Tax Act 1967, s.113(1) and (2)
- Income Tax Act 1967, s.114
- Income Tax Act 1967, s.124(3)
Sources
Applies to YA 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
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- What is the penalty for not issuing e-invoices in Malaysia?Non-compliance can be prosecuted under s.120(1) of the Income Tax Act, with a fine of RM200 to RM20,000, up to six months in prison, or both. LHDN will not prosecute during the relaxation period if the consolidated e-invoice conditions are met, and has a voluntary disclosure programme to 31 December 2027.
- How far back can LHDN audit my company or raise additional tax?LHDN can generally raise an additional assessment within five years after the end of the year of assessment, and seven years for transfer pricing. These limits do not apply to fraud, wilful default or negligence.
- What should I do when LHDN sends my company an audit or query letter?Read the deadline, appoint a tax adviser if needed, collect the documents requested, reply on time, and correct any errors you find. Ignoring a notice for information can itself be an offence with a fine of RM200 to RM20,000.
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