Which Debts Affect Zakat for Both Debtor and Creditor?

Answered By Shaykh Dr. Muhammad Fayez Awad

Question

What debts are deducted or added when calculating Zakat for both the debtor and the creditor?

Answer

All praise is due to Allah, Lord of the worlds. Blessings and peace be upon the Messenger of Allah, his Family, and his Companions.

Zakat, the third pillar of Islam, is mentioned alongside prayer in many Quranic verses. The Legislator has set specific conditions for it, highlighting its importance and significance.

Zakat is obligatory upon every Muslim, male and female. Whoever refrains from paying it after it becomes obligatory commits a major sin and grave wrongdoing, and it remains a debt upon them. Allah (Most High) says:

“Establish prayer, and pay alms-tax. Whatever good you send forth for yourselves, you will (certainly) find (its reward) with Allah. Surely Allah is All-Seeing of what you do.” [Quran, 2:110]

Ibn ‘Umar (Allah be pleased with them both) reported that the Messenger of Allah (Allah bless him and give him peace) said:

“Islam is built upon five: testifying that there is no god but Allah and that Muhammad is the Messenger of Allah, establishing prayer, giving zakat, performing Hajj, and fasting Ramadan.” [Bukhari; Muslim]

One condition for the obligation of Zakat is ownership of the Nisab (minimum amount). If a person does not own the Nisab, Zakat is not obligatory upon them.

The ownership of Nisab can be affected by the presence of a debt, either owed by the Nisab owner or owed to them.

So, does the owner of the Nisab need to pay Zakat if some of this wealth is a debt they owe?

Debt

Before discussing the scholars’ views on this matter, it is essential to clarify the term “debt” in Islamic jurisprudence. Scholars have two main views on its definition:

The first view defines debt as “a sum of money obligatory on a person, which is in exchange for destroyed property, a loan borrowed, a sale contract, or a benefit contracted upon, such as a dowry for a woman or rent for a property.” [Ibn Humam, Sharh Fath al-Qadir]

Some scholars also refer to it as “a debt that is owed to people.” [Ibn ‘Abidin, Radd al-Muhtar]

The second view, which is held by the majority of scholars, is that debt includes all financial obligations, whether in exchange for tangible property or benefits and even those that are established without consideration, such as Zakat. This is the view of the Malikis (See: Jundi, Mukhtasar Khalil), Shafi‘is (See: Shirbini, Mughni al-Muhtaj; Ramli, Nihayat al-Muhtaj), and Hanbalis (See: Mardawi, al-Insaf fi Ma‘rifat al-Rajih min al-Khilaf].

In Mughni al-Muhtaj, it is stated:

“Debt does not prevent the obligation of Zakat,” whether the debt is immediate or deferred, of the same kind as the wealth or not, whether it is owed to Allah (Most High) such as Zakat, expiation, and vows, or not. [Shirbini, Mughni al-Muhtaj]

The Issue at Hand

If a person possesses wealth that reaches the Nisab (minimum threshold for Zakat) but also has a debt equivalent to the amount of the Nisab, or they have a debt that is less than the Nisab but the remaining wealth does not equal a Nisab, should this person be required to pay Zakat on the wealth they possess, or should the existence of the debt be considered as affecting the Nisab, thus exempting them from Zakat?

If the wealth exceeds the amount of the debt, and the excess reaches the Nisab, then Zakat is certainly obligatory on the excess amount since there is no debt affecting that portion of the wealth. However, the wealth that corresponds to the debt is where the scholarly disagreement lies: should it be considered as affecting the Nisab or not?

Different Opinions of Scholars

First Opinion: Debt prevents the obligation of Zakat, except in the case of crops and fruits. This is the view of the Hanafis. [Sarakhsi, al-Mabsut; Kasani, Bada’i‘ al-Sana’i‘; Ibn ‘Abidin, Radd al-Muhtar]

Second Opinion: Debt prevents the obligation of Zakat on hidden wealth such as gold, silver, and trade goods, but does not prevent it on visible wealth like livestock and crops. This is the view of the Malikis. [Ru‘yni, Mawahib al-Jalil; Jundi, Mukhtasar Khalil]

Third Opinion: Debt does not prevent the obligation of Zakat at all. This is the relied-upon opinion among the Shafi‘is. [Nawawi, Rawdhat al-Talibin; Shirbini, Mughni al-Muhtaj]

Ibn Rushd (Allah have mercy on him) explains the reason for this disagreement:

“Their disagreement arises from whether Zakat is considered an act of worship or a right established in the wealth for the poor. Those who see it as a right for the poor say: There is no Zakat in the wealth of one who is in debt because the creditor’s right is prior in time to the right of the poor, and in reality, the wealth belongs to the creditor, not the one holding the wealth.

Those who view Zakat as an act of worship say that it is obligatory on the one who possesses wealth because that is the condition for being held accountable, and the sign indicating obligation on the accountable individual, whether they have a debt or not. Moreover, there are two conflicting rights: the right of Allah (Most High) and the right of a human, and the right of Allah (Most High) is more deserving of being fulfilled.” [Ibn Rushd, Bidayat al-Mujtahid]

Zakat on Lent Money: Is the Creditor Obliged to Pay?

Does the creditor have to pay Zakat on the money that has been lent out to others?

Although the debt is owned by the creditor, it is not in their possession, leading to differing opinions among scholars. The majority of scholars have divided immediately due debts into two categories:

Debts That Are Likely to Be Repaid

This refers to debts owed by someone who acknowledges the debt and is willing to repay it. There are various opinions on this:

Hanafi and Hanbali Schools: Zakat on such debt is obligatory each year because the wealth is owned by the creditor. However, the creditor is not required to pay the Zakat until they receive the debt. Once it is received, they must pay Zakat for all the previous years. [Ibn Qudama, al-Mughni]

Shafi‘i School: Zakat on a debt that is likely to be repaid must be paid at the end of each year, just like wealth in one’s possession, because the creditor can access and use it. [Qalyubi and ‘Umayra, Hashiyata Qalyubi wa ‘Umayra ‘ala Sharh al-Mahalli]

• Some debts are subject to Zakat each year, such as the debt of a merchant manager from the sale of commercial goods.
• Some debts are subject to Zakat for one year only, upon receipt, even if they remained with the debtor for several years. This includes cash loans and the price of goods sold by a hoarder.

Debts That Are Unlikely to Be Repaid

These are debts owed by someone who is insolvent, denies the debt, or delays repayment. There are different opinions regarding this:

Hanafi School: There is no Zakat on such a debt because ownership is incomplete since the creditor cannot benefit from it.

Shafi‘i School: The creditor must pay Zakat on it for all the previous years when they receive it, as reported from ‘Ali (Allah be pleased with him) regarding doubtful debts: “If the creditor is truthful, let them pay Zakat on it for the past years upon receiving it.”

Maliki School: If the debt is Zakatable, the creditor pays Zakat on it for one year upon receipt, even if it remained with the debtor for years.

Regarding deferred debts:

• Hanbali School and the most apparent opinion among the Shafi‘is: Deferred debts are considered similar to debts owed by an insolvent person because the creditor cannot collect them immediately. Therefore, Zakat should be paid on it for all previous years upon receipt.
• Hanafi and Maliki Schools do not distinguish between deferred and immediately due debts.

Recommendation

For further reading on this important aspect of Zakat, please refer to:

• “Zakat al-Duyun al-Mu‘asira” by Dr. ‘Abd Allah ‘Isa al-‘Aydhi
• “Zakat al-Duyun’ by Dr. Rafiq Yunus al-Masri
• “Mawsu‘at al-Fiqhiyya al-Kuwaytiyya”
• “Al-Fiqh al-Islami wa Adillatuhu” by Zuhayli

We ask Allah to grant us success in fulfilling the obligations He has prescribed for us and to accept from us, for He is All-Hearing and Responsive.

[Shaykh] Dr. Muhammad Fayez Awad

Shaykh Dr. Muhammad Fayez Awad, born in Damascus, Syria, in 1965, pursued his Islamic studies in the mosques and institutes of Damascus. A graduate of the Islamic University of Medina in 1985, he holds a Ph.D. in Islamic Studies from Bahauddin Zakariya University in Pakistan.

He has extensive experience developing curricula and enhancing the teaching of various academic courses, including conducting intensive courses. Shaykh Awad has taught Fiqh, Usul al-Fiqh, Quranic sciences, the history of legislation, inheritance laws, and more at several institutes and universities such as Al-Furqan Institute for Islamic Sciences and Majma‘ al-Fath al-Islami in Damascus.

He is a lecturer at the Sultan Muhammad al-Fatih Waqf University in Istanbul, teaching various Arabic and Islamic subjects, and teaches at numerous Islamic institutes in Istanbul. Shaykh Awad is a member of the Association of Syrian Scholars, a founding member of the Zayd bin Thabit Foundation, a member of the Syrian Scholars Association, and a member of the Academic Council at the Iman Center for Teaching the Sunna and Quran.

Among his teachers from whom he received Ijazat are his father, Shaykh Muhammad Muhiyiddin Awad, Shaykh Muhiyiddin al-Kurdi, Shaykh Muhammad Karim Rajih, Shaykh Usama al-Rifai, Shaykh Ayman Suwaid, Shaykh Ahmad al-Qalash, Shaykh Muhammad Awwama, and Shaykh Mamduh Junayd.