A VAT-registered person may earn interest income by depositing money in a bank account or by holding fixed deposits, recurring deposits, or any other similar bank deposit.

Out of scope supply

Value Added Tax (‘VAT’) is a tax imposed on the import and supply of goods and services at each stage of production and distribution, including deemed supplies.

“Supply” is the foundation of VAT, and therefore, VAT implications arise only when there is a supply. In other words, if there is no supply, there is no VAT implication.


Bank deposits may accrue interest to their holders. For example, a retail business may put its business income into a bank account and earn interest on the deposited amount. The business does not do anything to earn this interest income other than to merely deposit the money in the account, and therefore, it can be said to be earned passively.

In this case, the retail business does not make a supply to the bank, and therefore the interest income received is not a consideration for a supply. The retail business is not required to declare this income on its VAT return, as it is outside the scope of VAT.

It is important to note that the above position only applies to interest derived from bank deposits and does not have any bearing to the interest generated from extending loans or credit, which are exempt supplies for VAT purposes.

Passively earned interest income generated from bank deposits does not amount to consideration for a supply. Passively earned interest income from bank deposits are, therefore, outside the scope of VAT, and there is no requirement to report them in the VAT return.


Particulars VAT Effect
Interest on Bank deposit Out of scope of VAT
Interest earned by business actively involved in lending money VAT at standard rate

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