Question Summary:
Zakat on strong debts

Question Detail:

 
My father has sold a land to a person, say for ! million in 2010. The person has not paid the amount due yet. Does my father have to pay zakaat on that amount owed (Rs 1m) ? How much does he need to pay each year on that amount? 
Please treat this as urgent as zakat has not been paid and this question came to our minds lately. 

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
Zakat becomes compulsory(fardh) based on every individual’s personal financial condition. In principle, if one does not possess the Nisaab (quantum) of Zakaat or one’s liabilities exceed one’s assets, then one is not obligated to pay Zakaat.
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.
e.      If the credit extended becomes a bad debt (i.e there is no hope of receiving it) then there is no zakat wajib on such debt. However if the debt has been recovered  after losing hope of recovering the debt, then Zakaat will only be applicable on the year one recovered the debt.[2]
And Allah Ta’āla Knows Best
 
Ismail Desai,
Darul Iftaa
 
Checked and Approved,
Mufti Ebrahim Desai.