Case 4 - Farid's zakat rebate and an unfiled shop-lot disposal

Rebate, not relief. Zakat paid by a Muslim individual to an approved religious authority is a rebate against tax charged (s6A(3), Income Tax Act 1967). It is not an expense and not a relief. Clients frequently try to claim it twice, once as a deduction and again as a rebate; that is wrong.

Computation

• Tax chargeable, YA 2025: RM21,600
• Zakat paid in 2025: business RM6,000 + savings RM2,400 = RM8,400
• Rebate allowed: RM8,400 - it is below the tax charged, so it is fully used
• Tax payable: 21,600 − 8,400 = RM13,200, before credit for any PCB or CP500 instalments already paid.

The cap is the exam point. Had he paid RM25,000, the rebate would be capped at RM21,600, tax would fall to nil, and the excess RM3,400 would be neither refunded, nor carried forward, nor transferable to another year or another person. The religious obligation is still met; the tax value is not.

Conditions to verify. The receipts must be in Farid's own name and issued by the state zakat authority; zakat paid to a private fund or an individual does not qualify. Because the business is a sole proprietorship, its zakat is his personal rebate. If it were a Sdn Bhd, the company's zakat would be a rebate to the company and Farid could claim nothing personally.

The friend is half right, and half right is dangerous.

Rate. Farid is an individual citizen. Acquired 2018, disposed March 2025 - a holding period of about seven years, so the disposal falls in year six or later. For citizens and permanent residents the rate from the sixth year onwards is 0%. No RPGT is payable.

But the transaction is not closed. A 0% rate removes the tax, not the compliance:

• He must file the RPGT return (CKHT 1A for the disposer) within 60 days of the disposal date - roughly 60 days from March 2025, so the deadline has already passed. Expect a late-filing penalty; act immediately rather than waiting for a query.
• The return must show acquisition price, incidental costs of acquisition (legal fees, stamp duty, valuation) and disposal costs.
• The RM48,000 renovation is the weak item. Ordinary renovation is not an allowable deduction for RPGT; only genuine improvements may be argued. Treat it as non-deductible unless the tax agent can document it as an enhancement with invoices and before-and-after evidence.
• Fix the disposal date from the sale and purchase agreement, not from the handover of keys.
• Keep the SPA, valuation, receipts and CKHT acknowledgement for seven years - the computation is only as good as the evidence behind it.

Error 1 - zakat is not levied on accounting profit. Business zakat is assessed on zakatable assets: cash, receivables and stock, net of short-term liabilities, held for a full lunar year (haul) and above the nisab (about 85 grams of gold). A profitable year where the money has already been converted into fixed assets may carry little or no business zakat; a year with cash sitting in the current account does. Profit is the starting point for tax, not for zakat.

Error 2 - zakat and tax are separate systems. Zakat runs on the lunar calendar, the nisab and a flat 2.5%; income tax runs on the calendar year, chargeable income and a progressive scale. Paying zakat does not reduce chargeable income, and paying tax does not discharge zakat. The only link is the rebate computed above, capped at the tax charged.

Error 3 - the base is not the same as the personal savings base. Savings zakat is 2.5% on savings held above nisab for a haul; it is not simply a percentage of everything in the bank on 31 December.

Needs confirmation. Treatment of zakat on EPF savings and on certain investment accounts differs between state religious authorities. Confirm the Selangor position in writing rather than generalising from another state, and keep the authority's written ruling on file.