The federal government charges 16-40% income-tax on gross income every year. However if I take loan from the federal government money for buying a house I do not have to pay income tax on the interest and principal I pay on the loan. Since the lending agency and the income tax levying agency are the same i.e. federal government, can I pay interest on the loan with the intention of saving excessive income tax (which is basically ‘zulm’ or cruelty on me). I must mention here that I live in the U.S.A. I am an Audiologist(hearing professional), married with one daughter, and a muslim from Pakistan but U.S. citizen. Please reply as soon as possible. May Allah give you Jaza-i-Khair. Assalam-o-Alaikum
Your question has two points: a) Taking an interest bearing loan, and b)
Paying interest to same tax.
a) As regards to taking an interest bearing loan, we advise that it is
prohibited to do so.
b) Interest monies must be given to the poor and needy who are eligible to
accept Zakaat without the intention of reward. However, interest received
from government institutes, eg. post office could be used to offset
government taxes. Interest received from private banks cannot be used to
offset taxes. It may be used to offset interest charged from the same bank.
And Allah Taãla Knows Best.
Mufti Ebrahim Desai