Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh.  (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

Dear brother Burhan,

I just wanted to have some clarification regarding ZAKAT. If a person has taken interest free loan and he is returning it as monthly installments (as agreed by both parties) whereas he has the equal amount with himself and due to certain requirements (which may arise in near future) he doesn’t return the total amount of loan. In this situation is he entitled to pay zakat on that amount?

Your brother in Islam.

(There may be some grammatical and spelling errors in the above statement. The forum does not change anything from questions, comments and statements received from our readers for circulation in confidentiality.)

Answer:

Zakah on loan

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is none worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

The zakah dues are only payable on one’s nett excess wealth; thus if one has taken a loan, the wealth does not belong to him but belongs to the one who has given the loan, thus it is the one who has given the loan who will be liable to pay the zakah.

For example, if one were to take a loan for $1,000.00, and one has at the time of determining one’s zakah, paid two installments of $100.00 each. Thus the one who gave the loan is liable to pay zakah on his excess wealth, plus the $800.00 which he still has to receive from this loan, and the one who took the loan has to pay zakah only on his nett excess wealth which has been in his possession for one full calendar year…ie. his total assets minus his total liabilities.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Burhan