I have a fixed deposit at an Islamic bank. Should I calculate its Zakah based on the amount of the deposit itself or its profits only?
All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
Profits distributed by Islamic banks are separate from initial capital and result from finalized trade transactions conducted by means of Islamic Murabaha. Once the client/Mudarib (Giver of capital) receives his share of the profits, he should calculate their Zakah according to a new Lunar year (Hawl) and pay it after that lunar year elapses. This is of course after this amount reaches Nisaab. Moreover, he isn`t required to give the Zakah of profits along with that of the initial capital. However, if he did that then it will avail him Insha`Allah. The fact that it is difficult to open a new account for each new amount of profit and dedicate a new lunar year for each amount makes the giver inclined towards calculating the Zakah of both the profit and the initial capital in the same lunar year. In fact, resorting to this method is considered a form of paying Zakah in advance.
Our scholars (Shafie) are of the following view: "If the trade money has reached Nisaab (Minimum amount liable for Zakah while possessing it) and yielded profit during the lunar year , then there are two cases:
First: If the profit is an increase in the value of the items of merchandise which haven`t been sold yet due to rise in prices, for example, then its Zakah should be paid along with the Zakah on initial capital at the end of the same lunar year.
Second: If the profit is a separate amount resulting from selling items of merchandise or embodied in new items of merchandise bought after the old items were sold, then-according to the stronger opinion of the Shafie doctrine-Zakah should be calculated on the basis of a new lunar year separate from that of initial capital. For more details, refer to Tohfat al-Mohtaj, Vol.3:P.299 by Ibn Hajar al-Haitami. And Allah the Almighty knows best.