Question
السلام عليكم ورحمة الله وبركاته
I hope that you are well and in the best of health. I have 3 questions regarding zakat:
1. Lets say that you had a certain amount of money (in cash) that you gave away with the intention of business. Do you have to give Zakat on the money that was given away itself? Or do you give Zakat on only the profit that you gain out of it? Or do you give zakat on both?
2. Islamically, what is defined as a long term debt compared to a short term debt? What is the time limit for a long term debt compared to a short term debt? The reason I ask is because I have a relative who has a debt that he will not be paying off until next year (so not this year). Does he give full Zakat for this year? Or does he subtract his debt and give Zakat on what’s left? I’m aware that the ruling varies if it’s a short term debt or long term debt, but I’m not sure what the time limits of those two types of debts are. So how should he pay zakat?
3. Let’s say that you own a store. In the store are thousands of dollars worth of furniture that you obviously had to pay for to put into your store so that you can sell it at a higher price to make a profit. Do you only give Zakat on the profit that is gained out of it? Or do you give zakat on the thousands of dollars worth of those furniture (i.e. the money that is in the business)? Or do you give zakat on both? How does one pay zakat in this situation?
Answer
1. It is not entirely clear what you mean by giving your money away in business. If you are referring to making an investment, then you would pay zakat each year on the capital that was invested. As for the profit, zakat will only be paid from the time that it is received.
If the arrangement is buying shares in a company, then it would depend on the intention of buying the shares. If the intention is to sell the shares at a later date then the entire share value will be zakatable. If the intention is to remain a share holder and benefit from dividends then you will pay zakat according to the zakatable assets of the company. For example, if the share value is £1000 and the zakatable assets of the company make up 20% of the total assets then you will pay zakat on £200.
2. The general principle regarding debts is that one can deduct debt from their zakatable assets if they are already binding. The rational behind this rule is that a third party is entitled to these amounts and can at any time demand them from the debtor. Hence, the current owner does not really have the freedom to utilise these amounts as they wish, rather, they are in need of the amounts to pay off their debts and protect themselves from claims raised by the creditor. Shari’ah has permitted them to exclude this amount from their zakatable assets. Many jurists have applied this rule to immediate as well as long term debts.
When we look at the issue of deferred dowry (mahr mu’ajjal) the same rule would apply. However, in this particular case we see that some of these scholars adopted a different opinion. One of those opinions is that a differed dowry cannot be deducted from ones zakatable assets, only immediate dowry can. The reason being that the deferred amounts are not customarily demanded, hence, the need to retain those amounts to pay off the debt is no longer there. Another opinion is that if the husband intends to pay off the dowry then it is deductible, otherwise it is not. Again, this is because the amounts are not being demanded, nor is there any intention to utilise those sums to make the payments.
From this discussion we see that even though many jurists held the opinion that all types of debts can be deducted, whether immediate or deferred, in certain cases some jurists adopted the opinion that a deferred debt can not be deducted based on the rational behind deducting debts.
If we look at modern day long term loans that have a gradual payment plan, there are two possible options that can be adopted. One option is to deduct the entire debt based on the general rule of deducting debts, and the second opinion is to permit deducting only a limited amount. As for deducting the entire debt, there are a few issues with this.
Firstly, it is quite evident that the entire debt in such a case is not an immediate need of the debtor. The creditor does not expect future payments to be made immediately, nor do they have a right to those future payments according to the contract. In fact, at times the debtor may even get penalised for paying early. Hence, to state that the entire debt should be deducted on the basis that it is an immediate need conflicts with the reasoning behind debts being deductible in the first place.
Secondly, a principle adopted in zakat related issues is that the best interest of the poor is taken into consideration. By deducting the entire debt less zakat will be paid by the individual, ultimately impacting the poor. This means that anyone who has a mortgage or a long term loan arrangement where the total sum of debt is equal to or more than their zakatable assets, they will not have to pay zakat. Rather, they would actually be entitled to receive zakat in many cases. Hence, a person may live a nice and comfortable lifestyle whilst at the same time claim zakat based on being poor.
Due to these issues contemporary jurists have ruled that in the case of a long term loan, such as a mortgage, an individual cannot deduct the entire loan amount, rather they can only deduct up to one years repayments. The rational behind this is that the amount to be paid within that year is an amount which the individual is going to need for sure and therefore keeping hold of those sums will be considered as a necessity for that person. As for the payments to be made after the passing of a year, those will be considered a necessity for the following year and deductible next year, not this year.
Based on this discussion we can consider any payments not due within one year to be considered long term and therefore not deductible as they are not a need at the time of calculating zakat for that financial year.
One must bear in mind that this is in the event where one does not have any intention of paying off the loan until they are due. If however, a person actively puts all the extra money they have towards paying off the current and future payments, so as to free themselves from the debt as quickly as possible, then they can treat the entire debt as a deductible.
3. Stock purchased for selling at a later date is zakatable at its market value which will usually be the price that it is being sold for. Hence, the total value of all the furniture you purchased for selling on will be zakatable.
بدائع الصنائع في ترتيب الشرائع (2/ 6)
وَعَلَى هَذَا يُخْرَجُ مَهْرُ الْمَرْأَةِ فَإِنَّهُ يَمْنَعُ وُجُوبَ الزَّكَاةِ عِنْدَنَا مُعَجَّلًا كَانَ أَوْ مُؤَجَّلًا؛ لِأَنَّهَا إذَا طَالَبَتْهُ يُؤَاخَذُ بِهِ، وَقَالَ بَعْضُ مَشَايِخِنَا: إنَّ الْمُؤَجَّلَ لَا يَمْنَعُ؛ لِأَنَّهُ غَيْرُ مُطَالَبٍ بِهِ عَادَةً، فَأَمَّا الْمُعَجَّلُ فَيُطَالَبُ بِهِ عَادَةً فَيَمْنَعُ، وَقَالَ بَعْضُهُمْ: إنْ كَانَ الزَّوْجُ عَلَى عَزْمٍ مِنْ قَضَائِهِ يَمْنَعُ، وَإِنْ لَمْ يَكُنْ عَلَى عَزْمِ الْقَضَاءِ لَا يَمْنَعُ؛ لِأَنَّهُ لَا يَعُدُّهُ دَيْنًا وَإِنَّمَا يُؤَاخَذُ الْمَرْءُ بِمَا عِنْدَهُ فِي الْأَحْكَامِ
Answered by:
Ifta research Fellow
Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel