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,

ASAK, My question is on the topic of Zakat, I have bought 2 properties with a loan from the bank and still paying my instalments, One property is where I reside and the other rented out, Do I have to pay Zakat for them? I also have a business running, do I have to pay the zakat for the money I have invested in the business like rental advance deposits, stocks etc., Jaza`k Allah Khair

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Answer:

Zakah calculations

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.

Every believer, regardless of whether man, woman, or child, who has excess wealth of their own, is liable to pay a 2.5% zakat of their nett excess wealth in Shariah.

Zakat is not determined from one’s earnings, but rather on one’s net excess wealth which is left over after paying all their expenses, and it has been in their possession for a period of one calendar year. There is no zakah liable on the house one lives in, or the furniture and fixture one uses in their house, or the car one drives, etc. But if one has property which one has bought as an investment, or spare vehicles other than the one one drives, or jewelry, or any other excess asset…then zakah would be liable on these excess wealth and property.

Any asset, or wealth, or cash, or savings, which are left over after all of one’s expenses are paid, and that excess savings and wealth has been in their possession for one full calendar year is liable for payment of annual ‘zakat’ at 2.5% of its value.

Your Question: One property is where I reside and the other rented out, Do I have to pay Zakat for them?

The house wherein you reside is exempt from zakah; but the other property which you own but have rented out will indeed be liable for zakah annually.

If you have taken a loan for the property you have rented out, then you will be liable to pay zakah annually on the market value of that rented-out property less the loan amount.

For example, the cost of the property that you bought for investment was $10,000.00, and the market value of that property today is $15,000.00. The down-payment and the installments you have paid so far for that property is $6,000.00 and the balance loan outstanding is thus $4,000.00.

In such a case, you will be liable to pay your zakah on the market value $15,000.00 less the outstanding loan amount of $4,000.00 or $11,000.00 at the rate of 2.5% for this year.

Your Question: I also have a business running, do I have to pay the zakat for the money I have invested in the business like rental advance deposits, stocks etc., Jaza`k Allah Khair

Zakah is not determined on the amount one has invested in one’s business, but rather on the market value of the ‘stock-in-trade’ of the business, less the liabilities of the business. The rental advance which you have paid for the coming year is your asset which is not expensed until the rent is actually due, thus that too would be liable for zakah.

For example: the amount you invested to start the business was $10,000.00, the value of the ‘stock-in-trade’ is $7,000.00, the advance rental you have paid is $1,000.00 and you have accounts payable from the business of $2,000.00.

Thus your zakah will be determined as $7,000 + $1,000 - $2,000 = $6,000.00 at the rate of 2.5%.

Thus in business terms, your zakah will be determined on your current book-value of the business (which would include the value of your ‘stock-in-trade) plus any assets owned by the business minus the liabilities due from the business.

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