Monday, November 20, 2017 - 1 Rabi' al-Awwal 1439

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Is the money saved to purchase a house zakatable?

Is the money saved to purchase a house zakatable?

Answer

If you continue to hold cash savings, they remain subject to zakat every year even though they are earmarked for a definite purpose. To start with, such savings are ready money that can be used for any purpose at any time. Although you plan to use the money to buy a house, there is nothing to stop you from using it to buy a car, to establish a business, etc. But this is not the main point. Since your savings are liquid assets, they are subject to zakat. This is not contestable.

Once you use such money for any purpose, the situation becomes different and it should be looked at in light of the new circumstances. Thus, if you decide to invest your money in a manufacturing business and you use it to buy the machinery needed or the land on which you will establish your business, that money becomes exempt from zakat. You could also use the money to buy vehicles to transport your produce to your clients or to distribution outlets, rendering it non-zakatable.

Islam does not favor the non-investment of funds even though they may be earmarked for a definite purpose. The Prophet (peace and blessings be upon him) advised against this lest savings be consumed by zakat. What he meant was that if money were saved, without investment, then paying zakat on it year after year will diminish it. While the rate of zakat at 2.5% percent each year will not literally expend savings, the Prophet (peace and blessings be upon him) was actually referring to its progressive decrease in quantity and value. Hence, it is important to keep money growing by investing it.
And God the Almighty knows best.
 

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