S 4(c) INTEREST INCOME

Interest income

• Not defined by Act

• Compensation for delayed payment on money borrowed by the
borrower
• Person who received the interest is said to have received an
interest income.
• Bennett v Ogston: payment by reference to time for the use of
money
 Classes of Income
• Taxable under sec. 4( c ) as non-business income unless:
– It is received from trading debts
– It is received in the ordinary course of business; i.e from the
business of lending money
• Apply to banking, insurance or money lending companies
 Derivation of Interest Income
(Sec. 15)
Deemed derived from M’sia if;
a) the responsibility for payment lies with Government or state government
b) (i) the responsibility for payment lies with a person who is resident in
M’sia; and
(ii) interest in respect of money borrowed and employed in or laid out on
assets in or held for the production of any gross income derived from
Malaysia or the debt is secured by any property situated in Malaysia
c) The interest is charged as an outgoing or expense against any income
accruing in or derived from M’sia.
Payment by resident person
Sec. 15 (b)(ii)
Payment by Money borrowed
Resident Secured by property /
person Assets situated in M’sia

Employed in Laid out on assets

used held

For the production of

Malaysian derived income
 Payment of the interest by resident

• not necessarily regarded as received in Malaysia.

• We need to look at whether the loan is used in Malaysia to
generate income in Malaysia.
• If the loan is used to generate income in Malaysia, although the
lender is a non-residence, the interest income is said to has been
deemed derived from Malaysia.
• If the receiver (the lender of the loan) is a non-resident, he/she
is subject to withholding tax of 15%.
 Payment by non-resident;

• If the payer claimed the interest expense against the Malaysian

derived income [Sec. 15 (c)], thus the interest is deem derived
from Malaysia.
• Example 9.8
Example 9.8
 Basis period for assessment

• Non-companies, trust or co-operative society – calendar year

• Company - financial year end or calendar year
 Basis Period
• Gross income from interest when it first become
receivable in a specific basis period will be assessed
when it is received as a gross income for that period.
S 27(1)
• Received means a person is entitled to the interest
income accruing in or derived from M’sia and is able
to obtain the receipt on demand. (s. 29(1))
• Example: 9.10
Example: 9.10
 Basis Period

• Interest income overlaps two or more basis period – the interest

will be apportioned to the relevant period. Sec. 27(2) a
• When it is received it is spread back to the previous basis
period
• Example: 9.11
Example: 9.11
 Basis Period
• If overlaps 2 or more years and part of the interest
receivable elapsed more than 4 years before the date it
is become known to DG, the interest income is deemed
to have accrued evenly over the part of the overlapping
period which did not elapse. Sec 27(2) b
• W.e.f 2014, additional assessment can be made within 5
years
• Example 9.12
Example 9.12
 Basis Period

• If overlaps and wholly elapsed more than 4 years, the interest

income shall be treated as gross income which began 4 years
before the beginning of the YA. Sec 27(2) c
– Example :9.13
• Interest received in advance; Sec 27(3)
– It would not be apportioned but it is treated as gross income of the
period in which it is received.
– Example :9.14
 Allowable Expenses

• is ‘wholly and exclusively’ incurred in producing the gross

interest income
• Example:
– Where loan was made for the purpose in getting the interest income,
thus the interest expense relates to the loan is allowable to be deducted
 Exemption
Para 35, Shedule 6 of ITA 1967: Interest from:
• Securities or bonds issued orguaranteed by the Government;
or
• Debentures, other than convertable loan stock approved by
Securities Commission; and
• Bon Simpanan Malaysia Issued by Bank Negara Malaysia
• Interest income from unit trust paid by:
– Bank licence under Financial Service Act 2013
– Development Financial Institution Act 2020
 Exemption order: interest from...
• Any bank or financed company licensed under Banking and
Financial Institution Act 1989 (BAFIA) or Islamic banking
Act 1983
• Any registed Co-opeartive society
• Bank Simpanan Nasional;
• Bank Pertanian Malaysia;
• Lembaga Urusan Tabung Haji;
• Malaysia Building Society Berhad;
• Any other institution approved by the Minister.
 Other exemption: interest from
• Certificates issued by Government.
• investment in Premium Saving Certificate inder Bank Simpana
Nasional’s scheme
• Bond and securities issued by Pengurusan Danaharta Nasional
Berhad within or outside Malaysia.
• Non-convertible bond by any listed company in MESDAQ
• Merdeka Bond isssued by Bank Negara Malaysia
• Interest received by Non resident company from securities
issued by the government and from non-convertible Islamic
Securities or debenture issued in Ringgit Malaysia and approved
by Securities Commission.
 TAXABLE INTEREST INCOME

• W.e.f. YA 2017, interest income shall be taxed in interest is

paid/credited to:
a) a company in a same group;
b) i) a bank licence under the Financial Act 2013
ii) an Islamic bank licence under the Islamic Financial Act 2013
iii) a development Financial Institution under the Development
Financial Institution Act 2020