Zakat on deposits

http://darulfiqh.com/is-there-zakat-on-a-tenancy-deposit/

Question:

Is there Zakat on a tenancy deposit?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

The Answer:

Deposits on assured shorthold tenancies (AST’s) must be protected with a government approved scheme. Under the Housing Act 2004 the landlord or agent must protect the deposit and issue prescribed information to the tenant within 30 days of receiving it.

A tenancy deposit is a sum of money which a landlord requires a tenant to pay at the start of the tenancy or which the landlord holds over from a previous tenancy with the same tenant. The money is security in case the tenant does not meet their obligations in connection with the tenancy[1].

Zakat is not binding on a security deposit as it is not in the possession of the tenant – neither constructively nor physically[2].

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam al-Mahmudi, 
www.darulfiqh.com


http://www.daruliftaa.com/node/6134
<QUESTION>

Is the deposit one pays when renting out a house liable for zakat? In the UK landlords are known for stealing deposits, so it is highly likely that it may never return into one’s possession. 

<ANSWER>

In the name of Allah, Most Compassionate, Most Merciful,

One must always remember that paying zakat from any given wealth is the responsibility of the owner of that wealth (malik), and not the responsibility of the one to whom it is given for a specific duration.

It is stated in al-Fatawa al-Hindiyya: 

“(From the conditions for the obligation of Zakat is having complete control over the wealth), and that is to have ownership and possession. If one has ownership of the wealth and not possession…or possession and not ownership…, then zakat will not be obligatory…As far as the commodity that has not yet been delivered is concerned….it will be part of the Nisab hence zakat will be obligatory on it according to the correct opinion.” (al-Fatawa al-Hindiyya, 1/172)

The above text implies that both ownership and possession are necessary in order for zakat to be obligatory. The latter part of the above-mentioned text (concerning the commodity) implies that physical possession is not a necessary requirement for the obligation of zakat; rather, if one has full control over the wealth and it is redeemable whenever one desires, then this will be considered sufficient. 

In light of the above explanation, there are three scenarios with regards to the obligation of zakat on money that is deposited when purchasing something or when renting a property:

1) If the deposit is part of the total cost paid towards the purchase of an item or towards the rent of a property, then the depositor is not responsible for paying zakat from it. The one to whom it is deposited will be responsible to pay its zakat. The reason is quite obvious, in that the depositor no longer remains the owner of this wealth; rather, it has now come into the ownership of the one to whom it is deposited. 

2) If the deposited money is merely given as a trust on the condition and understanding that it will be returned, then paying zakat from it will be the responsibility of the one depositing it. The reason being is that zakat is the responsibility of the one who owns the wealth, and the one who deposits the money here is considered to be the owner of the deposited wealth. As far as possession over this money is concerned, as explained earlier, as long as one has control over this wealth one will be considered to have possession. Thus, both ownership and possession are found on the money that is deposited; hence, the depositor will be liable to pay zakat. 

3) If the deposit cannot be withdrawn over a specific period, then the ruling concerning it is similar to that of other loans given for a specific period, or it is similar to giving an item as security (rahn). 

The Hanafi jurists (fuqaha) have categorized loans into three types. Without going into the details, the crux of the ruling is that, it is preferable to include the money in one’s total possessions and pay zakat from it annually. However, payment of zakat will not be obligatory until the debt is recovered, but when it is received, zakat for the previous years will also have to be paid. Similarly, if a zakatable item was given as security, zakat will not be obligatory annually, but when the item is redeemed, zakat for the previous years will have to be paid.

In conclusion, zakat is obligatory on the individual who is the owner of the wealth. Thus, if the depositor is still considered to be the owner of the wealth that is deposited, he/she will be responsible to pay zakat from it.

And Allah knows best

[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK