Module 7 of 10 · 15 minutes

Deductions, Debts and Working Out Net Zakatable Wealth

By the end of this module, you will be able to:

1Explain which debts can be deducted before calculating Zakat
2Apply a step-by-step method to combine all asset categories
3Produce one final Net Zakatable Wealth figure

What can be deducted?

Before applying the 2.5% rate, certain debts and immediate essential costs can usually be subtracted from total wealth. This includes:

Debts due for repayment within the coming year, such as a credit card balance or a short-term loan instalment.
Unpaid bills that are already due, such as an overdue utility bill.
Business liabilities due within the coming year, as shown in Module 5.

Long-term debts, such as the remaining balance on a 25-year mortgage, are treated differently by different scholars. A common approach is to only deduct the instalments due within the coming twelve months, rather than the entire outstanding balance, since the rest is not yet due for repayment.

Common mistake

Deducting an entire mortgage or long-term loan balance in one go is one of the most common Zakat calculation errors. This significantly understates Zakatable wealth. Only the portion due within the coming lunar year should normally be deducted.

Bringing it all together

Once every category from Modules 3 to 6 has been reviewed, the final calculation follows five clear steps.

Step 1

List every Zakatable asset

Cash, gold and silver, business assets, investments, and any Zakatable property or produce.

Step 2

Add it up

Add these figures together to get Total Zakatable Assets.

Step 3

List short-term debts

List short-term debts and bills due within the coming year.

Step 4

Subtract

Subtract the debts from the Total Zakatable Assets to get Net Zakatable Wealth.

Step 5

Check and calculate

Check the Net Zakatable Wealth is at or above Nisab, then multiply by 2.5% to find the Zakat due.

Worked example

Total Zakatable assets (cash, gold, investments): £18,400. Short-term debts due within the year: £1,400. Net Zakatable Wealth: £18,400 minus £1,400 = £17,000. This is above Nisab, so Zakat due is £17,000 x 2.5% = £425.

Knowledge check

1. Name two types of debt that can typically be deducted before calculating Zakat.

2. Why is it usually incorrect to deduct a full 25-year mortgage balance in one year's Zakat calculation?

3. List the five steps used to reach a final Net Zakatable Wealth figure.

1. E.g. short-term debts due within the year (credit card balance/loan instalment) and overdue bills.

2. Only the portion due within the coming lunar year is deductible; the rest of the balance isn't yet due for repayment, so deducting it all understates Zakatable wealth.

3. List assets → total them → list short-term debts → subtract → check against Nisab and apply 2.5%.