Can Capital Gains and Losses Be Offset Against Each Other When Purifying Sharia-Compliant Stock Investments?
Shafi'i Fiqh
Answered by Shaykh Muhammad Carr
Question
Must capital gains be purified? If so, can they be offset against capital losses before calculating the purification amount? If offsetting is permitted, may gains and losses be netted against different stocks?
Answer
In the Name of Allah, the Most Merciful and Compassionate.
Thank you for your question.
Capital gains do not require purification, and gains and losses cannot be netted across different stocks.
Capital gain purification is not required because capital gains do not reflect impermissible factors. They are more a function of the price a buyer is willing to pay, which is itself influenced by factors such as supply and demand.
Offsetting plays a role in profit calculation but has no bearing on stock purification. Purification entails removing the impermissible factors native to the stock in question. As such, each stock stands alone.
It is the share itself, not the capital gains, that may reflect impermissible factors, and it is accordingly purified at the end of the financial year. [AAOIFI]
May Allah bless your investments. Direct them toward shares in enterprises that participate meaningfully in the real economy. Avoid speculative trading entirely. Conduct your trading with prudence and judiciousness, such that the return is commensurate with the effort, skill, and capital deployed.
Do “all you can” to ensure that your sustenance is permissible. Allah says: “So fear Allah all you can, and hear, obey and expend: It were better for your very selves.” [Quran 64:16]
And Allah knows best.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani
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Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.
In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.
