Is it required to pay zakat on provident fund amount?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
Provident funds are of two types: voluntary and compulsory. If the provident fund was compulsory and you had no choice, then the funds issued by the provident fund will be considered as a gift from the government/employer. You will not have to pay Zakaat on compulsory provident funds for the previous years you were invested with the fund. You will only calculate your Zakaat on the funds received for the current year based on your personal financial situation. However if the provident fund was voluntary, then it will not be permissible to participate in the fund since the majority of funds are invested in impermissible conventional financial institutions. One should dispose of the dividends accrued of such provident funds and pay Zakaat on the capital amount beginning from the year one started investing in the pension fund. Therefore one will pay Zakaat on the previous years on the capital amount invested if the provident fund was voluntary.
And Allah Ta’āla Knows Best
Ismail Desai,
Darul Iftaa
Checked and Approved,
Mufti Ebrahim Desai.