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:

ASSALAM ALAIKUM

My question to you is that I owe $30000.00 to the goverment i took as a loan for studying. Now i have $10000.00 with me and I have maintained this amount for last one year.alhamdulillah i have got a good job.But my loan payback period has not started yet.

is Zakaat obligatory on me or not?

Please answer this question as soon as possible as in Ramadan I give out zakaat.

thanks and Jazakallah kher.

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Answer:

Zakah on loans

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 (over the ‘nisaab which is appx US$1,000.00) of their own, is liable to pay a 2.5% annual zakat of their nett excess wealth in Shariah.

Zakat is not determined from one’s earnings or profits, 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 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.

Thus the basic formula to calculate zakah is as follows:

All Assets (except the house one lives in, vehicle one uses, etc.) minus all loans = Nett Excess Assets. It is on the market value of these Nett Excess Assets upon which the annual zakah of 2.5% is due.

Your Question: My question to you is that I owe $30000.00 to the goverment i took as a loan for studying. Now i have $10000.00 with me and I have maintained this amount for last one year.alhamdulillah i have got a good job.But my loan payback period has not started yet. is Zakaat obligatory on me or not?

If your only Asset is the $10,000.00 cash you have with you, and you owe $30,000.00 as loan; then your Total Liabilities will be negative $20,000.00 and no zakah will be liable on you, for zakah is liable only on a believer whose Total Assets are more than US$1,000.00.

But if you have other assets like property, shares, jewelry, etc. whose current market value is $40,000.00, and you have cash worth $10,000.00; thus your Total Assets would be $50,000.00. Your liabilities would be the outstanding loan of $30,000.00. Thus your total Net Excess Asset would be determined as $50,000 - $30,000 = $20,000.00, and you will be liable to pay 2.5% of $20,000.00 as your annual zakah.

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