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Ruling on Investing Gratuity Funds and their Liability for Zakah

Answered according to Shafi'i Fiqh by Darul Iftaa Jordan
What is the Islamic ruling on investing the funds of gratuity and staff provident in profitable businesses? Are they liable for Zakah every lunar year and should their Zakah be given from the profits?

Answer:

Praise be to Allah, The Lord of the Worlds; and blessings and peace be upon our Prophet Mohammad and upon all his family and companions.

These deposits are subject to a social insurance system governed by regulations that are primarily in the best interest of the employee. Monthly payroll deductions are like an insurance premium that becomes the employee`s upon receiving it.

Gratuity funds become liable for Zakah once they reach Nisab (Minimum amount liable for Zakah) and a full lunar year passes over possessing them, because possession is what makes Zakah an obligation. The resolution issued by the International Islamic Fiqh Assembly during its sixteenth session states, "No Zakah is due on the gratuity funds during the employee`s period of service, because he/she hasn`t received them."

As regards the provident fund, if the employee is at liberty to take his deposit whenever he wants to, then it becomes liable for Zakah once it reaches Nisab and a full lunar year passes over possessing it. But, if he isn`t at liberty to do so, then he should pay its Zakah for one time only upon collecting it or being at liberty to do so.

The resolution of the International Islamic Fiqh Assembly states, "Private foundations and companies which retain these monetary deposits are obliged to pay their Zakah in addition to that of their profits once they reach Nisab and a full lunar year passes over possessing them. Whereas, government institutions aren`t liable to pay the Zakah of such deposits because they are public funds. In addition, there is nothing wrong with investing these funds, by the above institutions, be they private of public, if that is stipulated in their regulations." And Allah The Almighty knows best.

This answer was collected from the official government Iftaa Department of Jordan.

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