Company Taxation: Deem Interest - Loan / advances to directors
Company Taxation: Deem Interest - Loan / advances to directors
Company that provides loan or advances to directors from its internal funds shall be deemed to derived interest income which is assessable under Section 4(c) of Income Tax Act 1967 (ITA). The interest income for that basis period shall be the aggregate sum of monthly interest in that basis period.
The sum of the monthly interest is determined in accordance with the following formula:
1/12 X A X B
A is the total amount of loan or advances outstanding at the end of the calendar month;
B is the average lending rate of commercial banks published by the central bank at the end of each calendar month. You could find the average lending rate here.
Where the interest charged by the company and the total interest charged and payable by the director is more than the aggregate sum of interest as determined based on the above formula, the provision of deemed interest income shall not apply.
Where the interest charged by the company is less than the aggregate sum of interest determined based on the above formula, the actual interest charges shall be disregarded. The company shall be deemed to derive the interest income based on the above formula.
Reference:
Section 140B of ITA 1967
What is the accounting double entry if we were to taken-up the deem interest on loan/advance to director?
ReplyDeleteHi thank you foe your comment.Deem interest is calculated for tax declaration purpose.you are not required to take in for accounting purpose.thanks.
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