Tax Treatment of Accrued Interest or Profit Payable to Bank or Financial Institutions during the Moratorium Period
The loan moratorium is one of the Government’s financial aid measures introduced under the Prihatin Rakyat Economic Stimulus Package (PRIHATIN) from 1 April 2020 until 30 September 2020. It is an offer for deferment or temporary suspension of loan/financing repayment obligations (principal and interest/profit) by a bank or financial institution without the imposition of late payment charges and the loan/financing must meet the specified criteria.
The Guidelines stipulate that pursuant to Section 33(4) of the Income Tax Act 1967 (“ITA”), a taxpayer is eligible to claim a deduction in respect of interest on borrowings when such interest is “due to be paid”. This applies even if the interest has not actually been paid on the date the interest is due to be paid.
The date the interest is “due to be paid” will be determined based on the loan agreement between the borrower and bank / Financial Institution. Therefore, during the moratorium period, interest / profit expenses that are deferred in a basis period for a YA are allowed as a deduction in determining a person’s adjusted income at the time the interest / profit amount is due. The expense claim will be allowed as a deduction for the YA in which the interest / profit accrued. This is in line with the application of provisions under subsection 33(4) of the ITA.
Special Tax Treatment
- Special tax treatment granted to the financial institutions is in respect of the amount of interest income / profit accrued but the repayment / payment is deferred during the Moratorium Period, whereby the income shall not be treated as the gross income of the financial institutions for that basis period for that YA.
- Interest income / profit accrued after the Moratorium Period shall be treated as the gross income for the basis period for that YA. Any accrued interest income / profit received during the Moratorium Period will also be treated as the gross income for the basis period for that YA.
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