Question

I would like to ask a question which would be better explained with an example: suppose I invest Rs. 1 lakh in any business as a sleeping partner.

What will be the percentage of Zaka’h, which is applicable to this investment?

Whether the Zaka’h will be on total investment or profit received only.

Reply

All assets which are in one’s personal and business use are exempt from Zaka’h. Thus there is no Zaka’h on the principal amount invested (being an asset used for business purposes). In my opinion, the method  of assessment of Zaka’h on investments as sleeping partners (or in shares of companies) should be as follows:

As we know, shares of a company or any amount of investments as a sleeping partner are a part of the invested wealth of the individual. As stated earlier, Zaka’h is to be paid on the wealth of an individual, which is neither utilized in any personal use nor in any business use.

As far as the wealth utilized in personal use is concerned, it is completely exempted from Zaka’h. While Zaka’h on investments is levied on the production (returns) of these investments. The rate at which Zaka’h should be levied on the production of investments varies with the nature of investments. If the returns or the production is gained through the investment of either capital only or that of labor only, then Zaka’h will be levied at the rate of ten percent of the production or returns on the investments. On the other hand, if the production or the returns are gained through a combination of both labor as well as capital, then Zaka’h will be levied at the rate of five percent of the production or return on investment.

Keeping the above explanation in perspective, one can easily assess the amount of Zaka’h applicable to investments in shares or in firms as a sleeping partner. To clarify, Zaka’h on investments in shares or in firms as a sleeping partner shall be levied at ten percent of the return/production of these shares or investments. In other words, Zaka’h on shares should be assessed at ten percent of the dividend/profits received on these shares or investments. This is so, because the return on shares or investments is actually a return on the investment of capital only, on which Zaka’h is assessed at ten percent of the production.

UIUK team

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