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:

I have just started a business, Alhamdollilah, all is going very well, but I have some major loans to pay(interest free)for the business started.My lifestyle Alhamdollilah is good,Allah has bestowed good food, good educatian for my kids and a good house as well as a good car and every month I pay an installment of my loan, In this case is zakat due and if so how much?My partner and me have not distributed profits of the 1st year we ploughed it back in the expansion of the business. I feel guilty at times but honestly nothing is saved at the end of the month.Please guide. 

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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 no one (no idol, no person, no grave, no prophet, no imam, no dai, nobody!) worthy of worship but Allah Alone, and we bear witness that Muhammad(saws) is His slave-servant and the seal of His Messengers.

Zakah is due on the nett worth of the person. Thus all you have to do is calculate your total worth, deduct your liabilities and loans; and then calcuate 2.5% of your Nett Worth. That is the amount that is due as payment in Zakah.

Thus, if your total worth, including your share of the business, is say $10,000.00. The loans that are outstanding against you are $7,000.00. Thus your nett worth is $3,000.00 and the zakah due is 2.5% of that amount, ie. $75.00.

But if your total worth, including your share of the business is say $10,000.00, but the loans outstanding against you are $ 20,000.00. Thus, your nett worth is actually negative -$10,000.00, and no zakat is due from you.

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

Your Brother in Islam,

Burhan