Is Fixed Deposit and Savings Interest Taxable in Malaysia?

The provision the exemption actually rests on

Paragraph 35 of Schedule 6 of the Income Tax Act 1967 exempts interest paid or credited to an individual by a bank or finance company licensed under the Financial Services Act 2013 or the Islamic Financial Services Act 2013, or by a development financial institution prescribed under the Development Financial Institutions Act 2002.

Before 30 August 2008 the exemption was rationed — it only reached fixed deposits of twelve months or less, and only up to a deposit ceiling. Those restrictions were removed, and the common advice still circulating that "FD interest above RM100,000 is taxable" or "only FDs under 12 months are exempt" is more than fifteen years out of date. There is no longer a ringgit cap and no tenure test.

• Savings accounts, current accounts and fixed deposits with any licensed Malaysian bank — exempt.
• Islamic deposit returns — hibah on a wadiah account, profit on a mudharabah or commodity murabahah term deposit — exempt on the same footing.
• Prescribed development financial institutions: Bank Simpanan Nasional, Bank Rakyat, Agrobank, SME Bank, EXIM Bank, Bank Pembangunan — exempt.
• Any amount, any tenure, any number of accounts. A RM3 million FD ladder generates exactly as much tax as a RM300 savings account: none.
• Nothing is withheld at source. Your bank does not deduct tax from the interest it credits you, because there is no tax to deduct.

Who the exemption follows — and who it does not

Paragraph 35 is written for an individual. It is not a property of the deposit; it is a property of the depositor. Move the same ringgit into a different kind of taxpayer and the exemption simply does not travel with it.

Why the individual-versus-company line costs real money

This is the part that catches business owners sitting on retained cash. Suppose RM200,000 is parked in a 3.5% fixed deposit, earning RM7,000 a year. Held personally, you keep all RM7,000. Held in the Sdn Bhd, that RM7,000 is section 4(c) income and is taxed — and because it is not business income, you generally cannot shelter it with the company's unabsorbed business losses or capital allowances.

Before you move company cash into your own name

• Getting the money out of the company is itself a transaction — salary, director's fee or dividend — and the tax on that extraction will usually dwarf the RM1,050 you were trying to save.
• A company that keeps large non-business assets can also find its SME status and the 15%/17% preferential bands questioned, which is a far bigger exposure than the interest itself.
• The practical reading is narrower and more useful: do not route personal savings through the company in the first place, and do not leave genuinely personal cash sitting in the business account because it is convenient.
• If the company lends its surplus to a related party instead of banking it, that interest is taxable too — and a loan to a director triggers a deemed-interest charge on the company under section 140B whether or not interest is actually charged.

Interest that is taxable even for an individual

The exemption is tied to a licensed bank paying you. Interest that arrives from anywhere else falls back to being ordinary income under section 4(c), taxed at your marginal rate with no threshold of its own:

• Interest on a private loan — money you lent to a friend, a family business, or your own Sdn Bhd as a director's advance. Common, almost never reported, fully taxable.
• Interest from money-lending carried on as a business. That is section 4(a) business income, not 4(c), and it brings a full set of business-income obligations with it.
• Returns from a peer-to-peer financing platform. The platform is not a licensed bank, so Paragraph 35 does not reach it. A time-limited exemption order covered individual P2P investments made in earlier years; confirm whether a current order covers your investment year before assuming it is exempt.
• Interest credited on a late-payment or judgment sum in a commercial dispute, where it is compensation for the use of money rather than for the loss itself.
• Interest earned inside a non-exempt structure you control — a trust, an investment holding company, or an estate under administration — even though you are the ultimate beneficiary.

Foreign deposits are a different question

Interest on a Singapore, Hong Kong or offshore deposit is foreign-sourced income, so Paragraph 35 is not the provision that matters — the foreign-source rules are. Since 1 January 2022 foreign income remitted into Malaysia is within the charge, with an exemption order carrying resident individuals through to the end of 2036 subject to conditions, including the requirement that the income has been subject to tax in the source country. The FSI guide works through what that condition means in practice and what documentation LHDN expects. Leaving the money abroad and never remitting it is a different situation again.

Non-residents

Paragraph 35 speaks of an individual without qualifying it by residence, so a non-resident individual's Malaysian bank deposit interest is exempt on the same terms — a point that matters to Malaysians working overseas who keep a local FD running.

Non-bank interest is the opposite story. Interest paid by a Malaysian payer to a non-resident is subject to 15% withholding tax under section 109, deducted and remitted by the payer within one month. If you pay interest to an overseas lender, that obligation is yours, not theirs, and the penalty for missing it is a 10% increase plus loss of the deduction.

What the exemption changes about comparing returns

• Compare FD rates to the EPF dividend gross-to-gross. Both are received tax-free by an individual, so a 3.5% FD and a 5.5% EPF dividend can be put side by side without any tax adjustment — unlike comparing either to a foreign bond fund.
• Dividends are not interest, and from YA2025 a 2% tax applies to individual chargeable dividend income above RM100,000. Bank interest sits entirely outside that charge no matter how large it is.
• Exempt interest does not create room to use your reliefs. A retiree living on RM60,000 of FD interest has no taxable income, so the RM9,000 self relief and every other relief simply go unused — they cannot be banked or carried forward.
• Exempt for tax does not mean invisible to a bank. FD and dividend income is still counted as income when a lender assesses your debt service ratio, so it strengthens a loan application even though LHDN never sees it.
• Conventional interest is not zakatable, and most state methods exclude it from the zakat base while still counting the underlying deposit principal.

What to put on your return

• Exempt bank interest is not entered as income on Form BE or Form B. There is no box for it and no disclosure requirement, and it does not raise your chargeable income by a single ringgit.
• Taxable interest goes in the statutory income section under interest and discounts, added to your other income before reliefs.
• If every ringgit you receive is exempt and you have no other income, you may have no chargeable income at all — but a registered taxpayer who has been issued a return still has to file it, even if the result is nil.
• Keep the bank statements regardless. A large unexplained deposit is a standard audit trigger, and the cleanest answer to it is a statement showing the credit came from a licensed bank as interest.
• Interest from a private loan should be reported in the year it is received, and the loan agreement is what proves the capital repayment portion is not income.

Caveats

Paragraph 35 has been stable since 2008 and there is no current proposal to narrow it, but the exemption is a Budget line like any other and the Schedule 6 paragraph numbering has shifted over the years. Confirm the wording for your assessment year on the LHDN site before relying on it for a large sum, and check the licensed-institution lists on the Bank Negara Malaysia site if your deposit is with a smaller institution — the exemption turns entirely on whether the payer is licensed or prescribed.

This is general information, not tax advice. It does not deal with interest arising inside a business, with Labuan entities, or with the treaty position on cross-border interest. Use the income tax calculator below to see how a taxable interest figure changes your chargeable income — and note that any exempt FD interest should simply be left out of the income you enter.