Q.1. I have invested a reasonable amount of money in a business. Do I have to pay zakah on that investment and on the profits I receive from that investment?
Q.2. I have also bought a house on mortgage, and I make substantial repayments in order to reduce the interest I have to pay as much as possible. This has resulted in my inability to pay zakah last year. Is it permissible to defer zakah payments for a couple of years, while repaying my mortgage?
M. Tahir
A.1. It all depends on the type of investment you have made. If you are using one of the many schemes offered by banks or governments to participate in certain funds or through stocks and shares, or through an Islamic bank, and you have ready access to your capital, then both capital and profit are liable to zakah in the normal way. The rate in this case is 2.5%. On the other hand, if your investment ties up your capital for several years and you cannot claim it back earlier without a considerable loss or a substantial penalty, then your zakah is payable on profits only at the rate of 10%. If your investment is in a private project, the nature of the investment also affects your zakah liability. Where capital assets are needed, such as a business premises or machines for production, these are not liable to zakah. The circulating capital, which is used to buy merchandise for sale, is zakahable together with any profits at the rate of 2.5%. This includes the value of any goods you are holding for sale, which must be valued at the current prices on your zakah date. You have to confirm your case with a scholar, giving him or her the necessary detailed information.
A.2. A mortgage loan or a loan taken in the form of hire purchase of any item such as a car or machinery is not counted in the calculation of zakah liability, because of the nature of the repayment agreement. If a person is earning SR100,000 a year, and spending 70,000 to meet his family’s living expenses, including the installments he pays on his mortgage and hire purchase agreements, he cannot claim exemption from zakah because he still owes a substantial sum on his house or other purchases. This is because the nature of such debts does not require immediate or short-term repayment. Such a person will be saving SR30,000 which is liable to zakah. Only if he decides at the end of the year to reduce his outstanding loans by an additional repayment, using all this saved sum for the purpose, he does not pay zakah for it.
It is wrong for anyone to defer the payment of one’s zakah, saying that he has some heavy commitments. Zakah is a debt owed to God and it must be paid on time. If one has heavy commitments, his zakah liability will be proportionately reduced. But to say that zakah is unaffordable when its rate is so low is to make a false claim. When the reader increases his mortgage repayments now, he will be saving on the total amount he has to repay. This means a direct benefit. He cannot make such a personal benefit through the failure to pay zakah.