Personal Loan Interest: Can It Be Deducted from Tax?

Introduction

"Can I deduct personal loan interest on my tax return?" — this is among the most frequently asked questions. The short answer: it depends on the purpose of the loan.

For employees and individuals generally, personal loan interest (credit cards, car, personal) is not a deduction and not a relief. For businesses, interest on loans used to produce income may be deducted — under certain conditions.

Employees: no deduction for personal loan interest

In the self-assessment system, employees can only claim deductions that are listed in a limited way in the Explanatory Notes for Form BE, including:

entertainment/travel expenses in the performance of official duties (limited to the allowance received); and
professional body fees.

Personal loan interest is not in that list of deductions. It is also not a personal tax relief.

Individuals generally: special relief only for first-home loan interest

The HASiL Tax Relief page (YA 2025 tab) does not list personal loan interest as a relief.

A special relief exists for first-home loan interest (box G22 in the BE Notes) — this is a special relief, not a general deduction, and it is not the same as a personal loan.

Business: interest deductible if used to produce income

For businesses, the principle is under s.33(1) of the Income Tax Act 1967 (Act 53): interest on loans used wholly and exclusively to produce gross business income may be deducted.

Conversely, under s.39(1)(a)/(b), personal/domestic expenses and expenses that are not wholly and exclusively incurred in producing income cannot be deducted. Official examples of s.39(1)(b) include loan payments not made for business purposes.

Warning: interest paid to non-residents

Interest paid to non-residents made without compliance with withholding tax (s.109) cannot be deducted — s.39(1)(f).

Anti-avoidance restriction: s.140C

There is a provision s.140C of the ITA — Restriction on Deductibility of Interest. The existence of this provision is confirmed through the official HASiL page (English edition only).

Next steps if you are unsure

Check whether the loan is used for business or personal purposes.
For business, ensure the loan is used wholly and exclusively to produce gross income, and keep records of the interest computation.
Consult a qualified tax adviser if the loan is used for mixed purposes.

Frequently Asked Questions (FAQ)

Q. Can I deduct my car loan interest as an employee? A. No — personal loan interest (including car) is not a deduction for employees, and it is not a personal tax relief.

Q. What if I use a personal loan for my business? A. Interest on loans used wholly and exclusively to produce gross business income may be deducted (s.33(1)). If the loan is used for personal/domestic purposes, it cannot be deducted (s.39(1)(a)/(b)).

Q. Is first-home loan interest the same as personal loan interest? A. No. First-home loan interest qualifies for a special relief (box G22 of the BE Notes). Personal loan interest does not qualify for any relief.

Q. Can all business loan interest be deducted? A. Not necessarily. The wholly and exclusively condition (s.33(1)) must be met, and interest paid to non-residents must comply with withholding tax s.109 (s.39(1)(f)). The provision in s.140C may also restrict the deductibility of interest.

Glossary

Deduction — an expense deducted from gross income before tax is computed (e.g. s.33 for business).
Relief — an amount deducted from chargeable income (e.g. G22 first-home loan interest).
Wholly and exclusively — incurred wholly and exclusively to produce income.
Withholding tax (s.109) — tax deducted at source on payments to non-residents.
YA — Year of Assessment.