Debts that are due for repayment within the next 12 lunar months can be deducted from Zakat calculations.
The following are the two views on the deduction of loans from Zakat:
Types of Deductable Debts
- Debts Payable within 12 Months: Any debts incurred that are to be fully repaid within the next 12 lunar months can be deducted from the Zakat calculation. This includes expenses that are due within this period, ensuring that the Zakat is calculated based on the net wealth that can be accessed.
- Arrears: Overdue payments or arrears, such as unpaid bills or debts that are past due, can be deducted from the total assets used for Zakat calculation. These represent financial obligations that reduce the amount of wealth available for Zakat.
- Personal Loans from Relatives and Friends: If a personal loan has been taken from relatives or friends and is to be repaid within the next 12 months, the amount due can be deducted from Zakat. However, the intention to repay within the year must be clear, and any deductions should be transparent and agreed upon by both parties.
- Bank Loans: For long-term bank loans, the capital repayment due within the next lunar year can be deducted from Zakat. However, it is important to note that any interest on the loan is prohibited and cannot be deducted, as interest (riba) is forbidden in Islam.
Conditions for Debt Deductions
- Impact on Debt Repayment: The deduction should only be made if paying Zakat will impact your ability to repay the debt. If paying Zakat does not hinder your debt repayment, then no deduction should be made.
- Limited Deduction: If Zakat does not significantly affect your ability to repay, it is encouraged to deduct only one month’s worth of debt repayments, rather than an entire year’s worth.
- Prevention of Hardship: The purpose of debt deductions is to prevent placing oneself in financial hardship. If the payment of Zakat does not cause harm or difficulty in repaying the debt, then the full amount owed should not be deducted.
These guidelines help ensure that Zakat is calculated in a way that fulfills religious obligations while maintaining financial stability.
And Allah knows best!