Question
I would like to ask the ruling of paying Zakaat on bad debts ? By bad debts I refer to such loans of money which a person gave to someone but has no hope of receiving that money any longer.
1. Is Zakaat payable on these amounts?
2. If after many years the person does pay the money, what will the rule then be? Will Zakaat have to be given for the previous years (in which there was no hope of getting the money)?
Answer
1. The Fuqaha have written that Zakaat is obligatory on every such a loan which the creditor has hope of retrieving, especially when the debtor confesses to owing the money or the creditor has some sort of proof (in the form of witnesses, documentation, etc.) stating that the debtor owes him money. However, together with the above, the creditor must also be able to retrieve his debt.
If the creditor is unable to retrieve the debt and in fact there is no hope whatsoever of retrieving the debt then the loaned money will be considered as Maal-Dhimaar (such wealth that has been lost and there is no hope of recovering), which in our terminology is termed as bad-debts. Such wealth is exempted from Zakaat.
2. In the case of Maal-Dhimaar (such wealth that has been lost and there is no hope of recovering), Zakaat will not payable on the past years, if one recoups the debt at a later stage.
Checked and Approved By:
Mufti Muhammed Saeed Motara Saheb D.B.
References
Fataawa Haqqaniyya pg. 531 vol.3
Tahtaawi Haashiyatut Durr pg. 393 vol.1