Question # 65: I took a loan from my parents sometime back for the purpose of buying a house, however ended up investing the money in a business and made profit on it. I plan to repay the loan in the first week of Ramadan. Should I pay Zakat on it?
bismi-llahi r-raḥmani r-raḥīm,
Assalamu ‘laikum warahmatullahi wabarakatuh,
All praise and thanks are due to Allah (سبحانه و تعالى), and peace and blessings be upon His Messenger (صلى الله عليه و سلم).
First of all, we implore Allah (سبحانه و تعالى) to help us serve His cause and render our work for His sake.
Shorter Answer: The one who has any ‘zakatable’ wealth must pay Zakah on it, when one year has passed since he acquired it, even if he has debts. The obligation to pay Zakah on debt is not lifted, and that every person who has wealth in his hand upon which Zakah is payable must pay his Zakah, even if he is in debt. This is because the two things are separate, and there is no conflict between Zakah and a debt, because a debt remains an obligation / responsibility of its owner and Zakah is incumbent upon wealth and must be paid from the wealth under all circumstances. The Prophet (صلى الله عليه و سلم) used to send his agents to collect the Zakah, and he did not tell them to see if the people were in debt or not. Nevertheless, if the debt is currently due and repayment is being demanded, and one wants to pay it off, in that case he should pay off the debt, then pay Zakah on what is left, if it reaches the minimum threshold (nisaab) at which Zakah becomes due.
Long Answer: According to Shaykh Muhammad bin Salih Ibn ‘Uthaimin “Scholars have differed regarding whether [the] …obligation [to pay Zakah] is lifted from the debtor until such time as he pays the debt or not. Among the scholars are those who say that the obligation of Zakah is lifted on the amount which is equivalent to the debt, whether the wealth is evident or not.
Among them are those who say that the obligation to pay Zakah is not lifted on the amount which is equivalent to the debt; rather he must pay Zakah on the whole amount which he possesses. If there is a debt incumbent on him, the nisaab is decreased.
There are those among them who discriminate, saying that if the wealth is concealed, wealth which is not seen and is not perceptible, such as money and trading merchandise, then the obligation to pay Zakah is lifted on the amount which is equivalent to the debt, while if the wealth is in the form of perceptible things, such livestock and the produce of the earth, then the obligation to pay Zakah is not lifted.
The correct view in my opinion is that the obligation to pay it is not lifted, regardless of whether the wealth is perceptible or not, and that every person who has wealth in his hand upon which Zakah is payable must pay his Zakah, even if he is in debt. This is because Zakah is incumbent upon wealth, according to the Words of Allah (سبحانه و تعالى): “Take Sadaqah (alms) from their wealth in order to purify them and sanctify them with it, and invoke Allah for them. Verily, your invocations are a source of security for them; and Allah is All-Hearer. All-Knower” (Soorah at-Tawbah, 9:103)
And the words of the Prophet (صلى الله عليه و سلم) to Mu’adh bin Jabal (رضي الله عنه) when he sent him to Yemen: “Inform them that Allah has made incumbent upon them the payment of Zakah on their wealth; it is taken from the wealthy among them and distributed among their poor” (Reported by Al-Bukhari)
…By this evidence from the Book (of Allah) and the Sunnah, the two things are separate, and there is no conflict between Zakah and a debt, because a debt remains an obligation and Zakah is incumbent upon wealth. So, each of them is incumbent in a place wherein the other is not incumbent, so there is no conflict between them, and no contradiction, and thus a debt remains the responsibility of its owner and Zakah remains incumbent on wealth, and he must pay it from the wealth in all circumstances.” (Fatawa Arkanul-Islam)
The Prophet (صلى الله عليه و سلم) used to command his agents to take Zakah from those who owed Zakah, and he did not tell them to ask them whether they had any debts or not. If having debts meant that one did not have to pay Zakah, the Prophet (صلى الله عليه و سلم) would have told his agents to ask the people who were paying Zakah whether they had any debts or not.
Majmoo’ Fataawa wa Maqalaat Mutanawwi’ah by Shaykh ‘Abd al-‘Azeez ibn Baaz: “… But if you pay off the debt with cash in hand before one year has passed, there is no Zakah on what you have spent to pay off the debt; rather Zakah is due on whatever is left, if one year has passed and it reaches the minimum threshold (nisaab).”
Shaykh Muhammad bin Salih Ibn ‘Uthaimin said in another Fatwa on the same issue: If the debt is currently due and repayment is being demanded, and he wants to pay it off, in that case we say: Pay off the debt, then pay Zakah on what is left after that if it reaches the minimum threshold at which Zakah becomes due.
Similarly, it is reported that ‘Uthman (رضي الله عنه) used to say during the month of Ramadan: “This is the month of your Zakah, but whoever is in debt, let him pay it off.” This indicates that if a debt is currently due to be paid, and the debtor wants to pay it off, that should take precedence over Zakah. But if a debt is not yet due to be paid off, the Zakah must still be paid, beyond a doubt. (Majmoo’ Fataawa al-Shaykh Ibn ‘Uthaymeen) (Islam Q&A)
Allahu A’lam (Allah (سبحانه و تعالى) knows best) and all Perfections belong to Allah, and all mistakes belong to me alone. May Allah (سبحانه و تعالى) forgive me, Ameen.