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Do we pay zakat on loans? 

Answered as per Hanafi Fiqh by Qibla.com

Answered by Mufti Yusuf Mullan

There was money given as an investment ~2 years ago. Some of the money wasn’t actually invested since the project didn’t require as much money as was collected and was hence returned. Say sum A was given, and sum B was recently returned and now sum C remains in the investment.

Question #1: Should sum B be basically treated like a loan, since it was returned as money that never got invested? If so (or even if not so), how do I pay zakat on it? Should I have been paying on sum B all along every year? How is one deal with money that one loaned out (to others), and not yet paid back, when calculating one’s wealth for zakat?
Question #2: How should I be (or should I have been) calculating zakat on the sum C that remains as an investment? Do I just pay zakat on the returns of the investment when I get those returns? How do I deal with the principle (the original amount invested) when my time to pay zakat comes? Pay on it, or since it is not under my control as cash, not pay?

In the Name of Allah, Most Gracious, Most Merciful

In the Name of Allah, Most Merciful and Compassionate. May His abundant blessing and most perfect of peace be on His Beloved Prophet, the best of creation, and his family, companions and followers.

In the mentioned situation zakat is only payable on the amount which was not invested and subsequently returned. 2.5% of that sum (sum B) will need to be given on behalf of each of the two years. This returned amount was not a loan (qardh). Rather it was simply money the other party was looking after for you (amaanah). As such, yes, you should have been paying zakat on behalf of it from the very first year. Had it been a loan, one would have had the option of delaying payment of zakaat (for all of the previous years) until the repayment. This is the ruling regarding loans.

As for the amount which remains as an investment, due to it not being in the form of cash, zakat will not be payable on it. Whatever returns you receive on this investment, however, will need to be calculated (at the end of the year) alongside your other zakaat-payable (nisab) assets.

And Allah knows best.

Yusuf Mullan

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This answer was indexed from Qibla.com, which used to have a repository of Islamic Q&A answered by various scholars. The website is no longer in existence. It has now been transformed into a learning portal with paid Islamic course offering under the brand of Kiflayn.

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