Question Summary:
Debts receivables are treated as one’s potential wealth

Question Detail:

My father purchased a house for my brother and my brother is now paying a monthly amount to my father in order to acquire this house for himself. My father would like to know if he should pay zakat on the total amount owing by my brother? The amount my brother will end up paying is exactly the price my father paid for the property.

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
 
You state that your father purchased a house for your brother. Your brother is paying out your father and will acquire the house from your father once paid out. Your father is essentially the creditor while your brother is the debtor. Kindly refer to the following analysis regarding Zakaat computation on the above matter.
 
1. Zakaat will be wajib (compulsory) upon a person who possesses the amount of nisaab, over and above his basic needs and after fulfilling his debts.
 
If a person had so much debt that if he had to fulfil the debt, he would have a remainder of wealth which is equal to or more than the nisaab, then zakaat will be wajib on the remainder of the wealth.
 
If the loan is such that it engulfs the whole wealth, or the remainder of the wealth after fulfilling the debt is less than the nisaab, then zakaat will not be wajib.
 
However, the ruling will be different in the case of long term debts that exceed the time period of one year. In such situations, the amount owed for one year will be calculated, and only that amount will be considered when applying the rules of zakaat. I.e. if the remainder of the wealth were to exceed the nisaab after fulfilling this amount, then zakaat will be wajib; and if this amount engulfs the remainder of the wealth or the remainder of the wealth after fulfilling this amount is less than the nisaab, then zakaat will not be wajib. We advise him to estimate the yearly figure he intend’s to pay your father (creditor) and calculate such figure as the liability when calculating the Zakaat. For example, the total liability to your father is R 1 Million and you intend to pay R 200 000 for this year towards his debt, then he will only calculate that amount as his liability and the remainder amount of R 800 000 will not be considered.
 
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.
Zakat on strong debts is governed by the following laws:
a.      At the time of calculating zakat if the debt is not received then zakat is not obligatory on that debt.
b.     Once the payment of the debts is one-fifth or more of the nisāb then zakat becomes due on that amount received. The zakat 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 zakat will be paid on the whole amount for that year and the previous years. ^[1]
d.     It is permissible to discharge zakat on debt receivables before the zakat 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 zakat for the past years upon receiving the final payment.
 
And Allah Ta’āla Knows Best
 
Ismail Desai,
Darul Iftaa
 
Checked and Approved,
Mufti Ebrahim Desai.