Asalamualaykum warahmatullahi wabarakatuh,
Respected Mufti Saheb,
A previous fatwa of askimam.org with regards to zakat on voluntary contributions to pension funds refers.
I would like to clarify the issue of deductibility of income taxes when calculating the zakat liability on the fund. In the enquired case, when a person is calculating the zakat liability on the fund value on an annual basis, can a person calculate the estimated income tax liability should the person choose to withdraw the fund immediately. Would the permissibility of including the income tax deduction change if the person has an intention to hold the fund till retirement in which case there will be no/a reduced income tax liability as the person is not withdrawing from the fund in advance?
Riaz Dhai CA (SA)
ZKC & Associates
In the name of Allah, Most Compassionate, Most Merciful,
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
When Zakat becomes compulsory on a voluntary pension fund, Zakat will be due on the entire amount. If one does not withdraw the fund early and is not charged income tax before Zakat becomes due, he cannot deduct this (tax liability) expense from his Zakatable assets. This is regardless of whether one has the intention to withdraw immediately, or hold the fund until retirement. The calculation of Zakat will only be in relation to what is there (or not there) in the fund when Zakat is due, not in relation to one’s intention. [i]
And Allah Ta’āla Knows Best
Hammad Ibn Ismail Jogiat
Student - Darul Iftaa
Cambridge, Ontario, Canada
Checked and Approved by,
Mufti Ebrahim Desai.
[i] جواهر الفقه – مكتبة دار العلوم كراچي (ج:3 ص:260)
فتاوى عثمانى – مكتبة معارف القرآن كراچي (ج:2 ص:56)