Answered by: Alimah Sofia Mirza
If a person takes a loan, they become the owner of the money borrowed whilst a debt liability is created on them to pay the amount back.
If they become the owner of the wealth do, they pay zakat on it? I understand that it is also a deductible, hence should cancel out, but in some instances, if the loan is long term the individual is instructed to deduct one year’s payment only. Hence, would they pay zakat on it minus the one year’s payment?
If so, the creditor will also be paying zakat on it though they have the discretion to pay once they receive the money back. Is there an issue with having two individuals pay the same sum of money?
In the name of Allah, the Most Gracious, the Most Merciful
The loans/debts a person has which relate to the rights of other people excuse one from paying Zakat, the loans which must be paid should be deducted from the total wealth and anything which is extra equal to the Nisab of Zakat one will have to pay Zakat for it. If after deducting the loan amount the excess wealth does not equal Nisab it will not be Wajib to give Zakat.1 Furthermore, if a person is paying off the loan in instalments, he will reduce this amount from his wealth only not the entire amount of the loan at one time and will determine if the excess wealth equals to Nisab he will have to give Zakat.2
Hence, if your wealth equals the Nisaab after you have deducted the loan you will have to give Zakaat and similarly, if you have been paying in instalments you should deduct that payment and if your remaining wealth is equal to Nisaab you will have to give Zakat otherwise not. If both the parties are paying Zakaat for their wealth because it equals nisaab there will be no issue in this regard.
Only Allah knows best
Written by Alimah Sofia Mirza
Checked and approved by Mufti Mohammed Tosir Miah
Darul Ifta Birmingham
1 Binayah Sharhul Hidayah, Darul Fikr Beirut, Vol 2, Pg. 160
ومن كان عليه دين يحيط بماله فلا زكاة عليه
وَلَنَا أَنَّهُ مَشْغُولٌ بِحَاجَتِهِ الْأَصْلِيَّةِ فَاعْتُبِرَ مَعْدُومًا كَالْمَاءِ الْمُسْتَحَقِّ بِالْعَطَشِ وَثِيَابِ الْبِذْلَةِ وَالْمَهْنَةِ (وَإِنْ كَانَ مَالُهُ أَكْثَرَ مِنْ دَيْنِهِ زَكَّى الْفَاضِلَ إذَا بَلَغَ نِصَابًا) لِفَرَاغِهِ عَنْ الْحَاجَةِ الْأَصْلِيَّةِ،
2 Fatawa Darul Uloom Zakariyyah, Vol 3, Pg. 129-131.