I owe the bank a lot of money for my mortgages. I also earn a lot of money which goes to pay for these loans. This money is always spent on my debts. I do not have any saved money in my business accounts, although I have a lot of money being earned, and a lot of money being spent, on our house, our bills, and on our lifestyle.
I have a few savings plans which generate a lot of money also. These saving plans are not touched and the money grows each year. They are savings plans which have to be kept for 10 years. However, my plan for these savings plans is to pay off my mortgages just in case I am not able to do so within the next few years with the money I am earning.
Do I need to pay any zakat on my savings? I know that I should not have these mortgages, but I do. Whenever I try to calculate my zakat, I find that I have too much debt in my mortgages, and this seems to cancel out any Zakat I need to pay. Is this correct?
Do I need to pay any zakat on my savings?
A very important and simple principle concerning the calculation of Zakat should always be kept in mind and which makes the calculation of Zakat straightforward – that is, when one becomes the owner of the fixed nisab amount (612.36 grams of silver) for the first time in one’s life, then that (Islamic) date should be kept in mind. Then the following year on the same (Islamic) date, if one is still the owner of nisab, one will be considered to be sahib al-nisab, hence Zakat will be obligatory at the rate of 2.5% on the total Zakat-able assets. It makes no difference whether the wealth increases or decreases during the course of the year, neither is it necessary that every part of the wealth remains in one’s possession for the whole year. (See: Bada’i al-Sana’i, 2/96-98 & al-Lubab fi Sharh al-Kitab, 1/145)
Secondly, when one adds all the Zakat-able assets as one amount, one must see how much debt one owes to others, and then subtract this debt from the total. Thereafter, Zakat is paid from whatever remains after subtraction, if it reaches the value of nisab, at the rate of 2.5 %. (Radd al-Muhtar 2/260)
As regards short-term and long-term loans, the preferred opinion in the Hanafi School is that only short-term loans will be deducted and not the long-term loans. As such, one should avoid deducting the total outstanding amount of mortgage from one’s calculations and restrict it to only that payment which is immediate. (Radd al-Muhtar, 2/261)
Based on the above explanation, when you calculate your zakat on your designated Zakat date, only deduct the amount of debt which is immediate. The mortgage is paid in instalments and on a long-term basis, thus you should avoid deducting the full amount of mortgage that you need to pay. In this way, you may well have to pay Zakat from the savings you have in your account.
I hope I have managed to clear up things for you, Insha’ Allah.
And Allah knows best
[Mufti] Muhammad ibn Adam
Leicester , UK