Zakāt on Pension Fund – Subtracting Zakāt from a Loan

As salām ʿalaikum wa raḥmatullāhī wa barakātuhū

In the Name of Allāh, the Most Gracious, the Most Merciful.

1. One is not obligated to pay Zakāt on funds that have not come into one’s complete ownership. The pension fund and retirement annuity in reference can only be legally accessed on resignation or retirement. Accordingly, you will be only obligated to pay Zakāt on the funds once paid out by the retirement fund.

2. Debts receivables are treated as one’s potential wealth and regarded as a strong debt as one is certain of receiving payment of such a debt. Zakāt on strong debts is governed by the following laws:

a. At the time of calculating zakāt if the debt is not received then zakāt is not obligatory on that debt.

b. Once the payment of the debts is one-fifth or more of the niṣāb then zakāt becomes due on that amount received. The zakāt will be calculated for the present year as well as the previous years.

c. If someone receives the complete debt in a lump sum, then zakāt will be paid on the whole amount for that year and the previous years.

d. It is permissible to discharge zakāt on debt receivables before the zakāt becomes due on it. In essence, if one pays 2.5% on the debt receivable every year before receiving payments, then one would not have to pay zakāt for the past years upon receiving payments.

e. If the credit extended becomes a bad debt (i.e. there is no hope of receiving it) then there is no zakāt wājib on such debt.

And Allāh Taʿālā knows best.