Last month at site meeting, boss showed me the contract account and said:
“Boss, retention not yet receive. So this part not taxable yet, right?”

I laughed and told him:
“By your logic ah… my tax fee also not taxable yet. Because you will ask discount, then drag payment for x months.”
He stared at me. Totally stunned. 😅

Jokes aside, “Retention Sum” is the quietest account that can become the loudest tax issue.

Under LHDN Public Ruling 5/2025 (Construction Contracts), progress billings include retention sums. And under Income Tax Act 1967, Section 24(1), tax timing follows debt owing / receivable, not only cash received.

Why contractors miss it?

Books follow cash (net of retention)
QS cert not linked to tax file
No retention schedule by project
Later release gets double counted

Quick fix (3 steps):

Do a retention schedule by project.
Year-end reconcile: certificate → invoice → ledger.
Keep documents ready.

If your retention balance is big, don’t wait for LHDN to “teach” you.

Read the full content in our blog
https://www.ktp.com.my/blog/retention-money-tax-treatment/23jan2026