Tax treatment

7
Tax Treatment on
Islamic Finance 
in Malaysia
 
Differences between Conventional and 
Islamic Finance Transactions - Examples
This table show some of self-explanatory differences between the Shariah-compliant financing 
transactions and products compared to common conventional financial instruments are as follows:
CONVENTIONAL 
SHARIAH-COMPLIANT
Property Financing
Home loans are lumpy assets and may be 
largest financial commitment in the lifetime. 
Interest paid is based on the loan remaining, 
the amount deducted for interest from each 
fixed monthly instalment decreases overtime 
as the loan remaining decreases. This 
decreasing interest deduction also means 
that the amount of principal repaid increases 
every month i.e. the customer will repay to the 
bank the loan amount, together with interest 
at the prescribed rate. The prescribed rate is 
based on a margin above the bank’s base 
lending rate (BLR), and both the margin and 
the BLR are variable from time to time.