Tuesday, November 21, 2017 - 3 Rabi' al-Awwal 1439

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Paying zakat on pieces of land whose price is paid in installments

Last year I bought a piece of land and completed its purchase, paying the price in full. I also reserved several pieces, paid part of the price and am paying the rest through installments. I have been told different things about the zakat I have to pay for these pieces of land. Could you explain what I should pay and when to pay it?

Answer

A piece of land bought for resale within a reasonably short period of time is treated like other commercial goods — it is zakatable on the basis of its current value. This means that if you expect to sell the land you own in full within a few months’ time or within a year, you should calculate its value and pay zakat on it at the rate of 2.5% when zakat on it becomes due.

As for the pieces of land whose price you have not yet paid in full, you are only required to pay zakat on what you own. Thus, if you paid 40% of the price of a piece of land, which on your zakat date is worth 10,000, you are required to pay zakat on only 4,000. This means that your zakat on this piece of land is 100. On the other hand, a piece of land intended for development is not subject to zakat because it becomes part of your capital assets. Zakat becomes due on the property built on it depending on its use. If you build a house on it for your residence, no zakat is due either on the piece of land or on the building. But if you build a residential complex, selling some units and renting out others, then the proceeds from the sale and rent of these units are subject to zakat at the rate of 2.5% on the day you receive the money. For subsequent years, it is part of your property and is zakatable in the usual manner.

As for rented buildings, zakat is only levied on the rent. There are different scholarly opinions on the applicable rate of zakat; some treat it as any other property i.e. the zakat rate is 2.5% of the gross amount of rent; others say that the rate is 5%; while a third group maintains that the rate is 10% on the net income after deducting all maintenance and administrative expenses. The last two views base the rates on those of farmable land, whether land irrigated by machines as in the second view or by rainwater as in the third view. In all cases, zakat is payable on receipt of the rent, whether on a weekly, monthly or yearly basis. One should not wait until one's annual zakat date to pay zakat on rented property.

A land kept for years before resale until it reaches the desired price is not subject to zakat until it is sold. It is comparable to goods that are left unsold to avoid a big loss. On receipt of the price, zakat is to be paid on the entire sum received, only once.
And God the Almighty knows best.
 

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