Zakah on collected and uncollected debts
What is the ruling on zakat on debts that are unlikely to be collected and those likely to be collected? What is the ruling on the zakat on sold merchandise?
A loan that reaches nisab [minimum amount on which zakat is due i.e. 85 grams of gold] by itself or when added to any sum that a creditor already has is zakatable if it remained in his possession for a hawl [a whole lunar year]. This is because it is a sum of money that meets the conditions of zakat. Accordingly, zakat is to be paid on it whether the debtor admits or denies taking the loan, is poor or rich, or it is due immediately or deferred. Not having the money in one’ possession does not mean that it is zakat free.
The manner of paying zakat depends on the kind of loan which is either due immediately or in deferred payments. Instant loans are of two kinds. The first is one that is due on a well-off person who is capable of paying it off any time he wills. The zakat on this kind of loan becomes due at the end of every hawl even if the creditor does not collect it. This is because it is tantamount to money in one’s possession, but in the safekeeping of another. The second kind, is a loan that is unlikely to be collected, or the debtor is tardy in repayment. The creditor must pay zakat on this kind of loan when he regains possession of it whereupon he must pay zakat on it for the whole time it was out of his hands. This is the position of Shafi`i scholars and is the stricter opinion. Hanafi scholars maintained that zakat is due on such a loan for a hawl when the creditor regains its possession and this is more facilitating.
Zakat is due on merchandise offered for sale for Sommrah Ibn Jundob said: “Prophet Muhammad (peace and blessings be upon him) used to order us to pay zakat on merchandise put up for sale” [recorded by Abu Dawud]. At the end of the hawl, the merchandise is assessed in cash according to current prices. Zakat is due on it if it equals 85 grams of gold or more, regardless of any profits or losses. The zakat must be paid in cash and not in kind.
And God the Almighty knows best.