Q. A few years back I bought a piece of land intending to sell it later at a profit. In the first year I paid zakah on the land value at the rate of 2.5%, but then I changed my mind and decided to build a complex there. I stopped paying zakah for it.
However, I could not raise the necessary funds for my project, and I decided again to sell it. I was told that zakah is not applicable to it until it is sold. I stopped paying zakah, and adjusted what I paid on the land value against my zakah liability for a later year. Now I am told something different. Could you please explain what is my liability.
M. Mujeeb
A. A land bought for re-sale within a reasonably short period of time is treated like other commercial goods. It is liable to zakah on the basis of its current value on the zakah date.
So, what you did in the first year was correct and should not have been taken back as you did later.
On the other hand, a land intended for development is not liable to zakah because it becomes part of capital assets. Zakah becomes liable on the property built on it according to its use. If you build a house for your own living, with your family, no zakah is payable on the land or the building.
But if you build a residential complex, selling some units and renting other, then the money you receive for the parts you sell is liable to zakah at the rate of 2.5% on the day you receive the money. For subsequent years, it is part of your money.
Buildings that are let out are also liable to zakah, but only on the rent received. Scholars have different views with regard to the rate of zakah on rented building. Some treat it as other money, requiring payment of zakah at the rate of 2.5% of the gross amount of rent; others say the rate is 5%, comparing it to the rate on the produce of agricultural land irrigated with machines; and a third view makes the rate 10% of the rent received after deducting any expenses incurred in the renting process.
Again the comparison here is with agricultural land irrigated by rain. In all these cases, zakah is payable on receipt of the rent, whether on weekly, monthly or yearly basis.
One does not wait until a year has lapsed, or until one’s zakah date to pay zakah on rent.
A land that is kept for years before re-sale, intended always for selling at the right price, is not liable to zakah until it is sold. On receipt of the price, zakah is payable on the whole price of the land, once only.
This means that no zakah is payable for past years, but for future, the price becomes part of one’s property and is zakahable with the rest of one’s money.
Arab News Islam 13 December 2002