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Is Zakat payable on paper currency ?

Q:

Is Zakat payable on paper currency ?
If not, on what basis has the paper currency been excluded when it is payable on gold and silver, in addition to some livestock and grains ?
Ayatollah Sistani has in his “Tawdhihul Masael “ as the 10th item :“As an obligatory precaution, upon the wealth in business.”
Further explanation on page 350 of the translation discusses zakat on business goods. There is no mention of services as a business product being sold and bought. How would Nisab be determined ?

Is there any comprehensive paper or a book that discusses fully all aspects of Zakat and liability relevant to the present system of business dealings ?

A:

Salamun Alaykum

Thank you for your query.

Zakat On Currency

The Sunni schools of Islamic law believe that zakat is wajib on any kind of gold and silver, whereas the Shi‘a school believes that zakat is wajib on gold and silver only if they are in form of coins.

As for currencies, three of the four Sunni schools say that it is wajib to pay zakat on currencies provided they reach to the minimum value (equivalent to 4.8 grams of gold) and provided they were under one’s continuous possession for a year.

The fourth Sunni school (Hanbali) believes that it is not wajib to pay zakat on currencies unless one converts them into gold or silver.[1] This position is closest to the Shi‘a position that believes that zakat on currencies will become wajib only when one converts them into gold or silver coins.

The Shi‘a school believes that it is not wajib to pay zakat on currencies. There is a very logical explanation for why zakat is not wajib in currencies:

1) If a person says that “the currencies or bank notes represent the gold or silver coins that are in the government’s treasury,” we would still say that zakat is not wajib on them. Why? Because a person who possesses the currencies does not possess the gold or silver coins, he just possesses the right to ask the government for gold or silver coins. For zakat to become wajib, one must possess the actual coins for a whole year.

2) If a person says, “the currencies or bank notes represent the gold or silver ingots that are in the government’s treasury,” we would still say that zakat is not wajib on them. Why? Zakat becomes wajib on silver and gold only in form of coins.

3) If a person says that “the currencies or bank notes are like promissory notes that prove the indebtedness of the government to that person for certain number of gold or silver coins that are in its treasury,” we would still say that zakat is not wajib on them. Why? What a person has given to someone else as loan is not deemed to be in his possession and therefore it is not liable for zakat

[1] The Five Schools of Islamic Laws, p. 153.

https://www.al-islam.org/articles/zakat-shia-fiqh-sayyid-muhammad-rizvi

Ruling 1871. Zakat is obligatory (wājib) on ten things:

1. wheat;

2. barley;

3. dates;

4. raisins;

5. gold;

6. silver;

7. camels;

8. cows;

9. sheep [and goats];

10. business goods, based on obligatory precaution (al-ihtiyāt al-wājib).

https://www.sistani.org/english/book/48/2279/

Regarding the business good the ruling is mentioned:

Goods which a person comes to own through a contract of exchange (ʿaqd al-muʿāwadah)(1) and which he keeps for business and profit earning is, based on obligatory precaution, liable for zakat if certain conditions are fulfilled. The zakat on such property is one-fortieth [2.5%]. The conditions are as listed below.

1. The owner must be bāligh and sane.

2. The goods must have a value of at least fifteen mithqāls of coined gold or fifteen mithqāls of coined silver.

3. One year must have passed from the time the owner intended to make profit from the goods.

4. The intention to make profit must remain throughout the year; therefore, if the owner changes his mind during the year and, for example, decides to spend it on his living expenses, then zakat is not obligatory.

5. The owner must have right of disposal over them throughout the year.

6. Throughout the year, the goods must be saleable for an amount that is equal to, or more than, the capital outlay. Therefore, if during a period of the year the goods are not saleable for the amount that is [at least] equal to the capital outlay, it is not obligatory on him to pay zakat on them.

(1) This is a contract in which something is given in exchange for something else.

https://www.sistani.org/english/book/48/2286/

Goods earned by commutative contracts, and set aside for investment in business or profit earning, is, on obligatory precaution(Ehtiyate wajib), liable for Zakat if certain conditions are fulfilled. The rate of Zakat is 1/40.

Books/articles regarding Zakat:

https://www.al-islam.org/articles/zakat-shia-fiqh-sayyid-muhammad-rizvi

https://www.al-islam.org/islamic-laws-sayyid-ali-hussaini-sistani/zakat-part-i-ii

May Allah(swt) grant you success

Wassalam,

Syed Haider