Income tax as Zakah
Mu' meneen Brothers and Sisters,
As Salaam Aleikum wa Rahmatullahi wa Barakatuh. (May Allah's Peace, Mercy and Blessings be upon all of you)
One of our brothers/sisters has asked this question:
From ones earnings income tax is deducted, which was not the case in the days of Prophet Saws.
Can we include income TAX as Zakat and pay zakat on the remaining earings and on the money saved for that tax year.
retirement saving is taxed upto 40% if withdrawn for ones own expence. So how
can one calculate zakat on this kind of savings?
Jazak Allah for all your help in deen of Islam
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Income tax as Zakah
In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is no one (no idol, no person, no grave, no prophet, no imam, no dai, nobody!) worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.
The ‘income tax’ a worldly government imposes on its citizens is completely different and distinct from the obligatory ‘zakah’ dues which have to be paid by a believer to purify his wealth. The paying of one’s income tax to a worldly government has absolutely no bearing or relevance to the payment of one’s ‘zakah’ dues.
In principle, a believer of means is liable to pay his annual ‘zakah’ @ 2.5% on his total excess wealth (total excess assets after the payment of all liabilities, loans, expenses including the payment of income tax, etc.) which has been in his possession for a period of one full calendar year. One’s annual income or the payment of income tax has absolutely no bearing on one’s ‘zakah’; for ‘zakah’ is to be paid annually on only one’s total excess wealth which has been in his possession for a period of one calendar year.
For example a person earns $10,000.00 a year, expenses of $6,000.00 a year, pays income tax of $3,000, lives in a house worth $100,000.00, has a car worth $5,000.00, has jewelry worth $5,000.00, an extra property investment worth $20,000.00, and a bank savings worth $5,000.00.
The zakah calculation of the above person will be done as follows:
- The income, expenses, and income tax a person pays has absolutely no bearing on his zakah calculations.
- The house one lives in, the vehicle one uses are exempt from ‘zakah’ as they are a necessity being utilized in one’s day-to-day life.
- Zakah of the above person will only be liable on the value of his jewelry (@2.5% of $5,000.00) + the value of his extra property (@2.5% of $20,000.00) + the bank savings (@2.5% of $5,000.00), provided these assets have been in his possession for a period of one full calendar year.
Thus regardless of his income, or expenses, or how much income tax is imposed on him by his government, or the value of his house or his car which he utilizes to live
his day-to-day life; the total excess wealth of the above person will be determined at $30,000.00 (jewelry + extra property or investments + bank savings) and he will have to pay 2.5% of #30,000.00 or $750.00 as his ‘zakah’
Your Question: Can we include income TAX as Zakat and pay zakat on the remaining earings and on the money saved for that tax year.
As shown in the above example, how much earns and how much income tax one pays to one’s government has absolutely no bearing on the determination of one’s zakah. Zakah is paid only on one’s total excess wealth which has been in one’s possession for a period of one full calendar year.
Your Question: Also the retirement saving is taxed upto 40% if withdrawn for ones own expence. So how can one calculate zakat on this kind of savings?
Retirement savings will be considered amongst one’s investments and thus excess wealth, and until one has actually withdrawn the amount one would be liable to pay zakah on it at the rate of 2.5% annually. When one does actually and physically withdraw it, and pays the government the 40% imposed tax, he will be liable to pay 2.5% of what he is able to save from those savings.
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Your brother and well wisher in Islam,