Friday, July 12, 2024
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Zakaah on land and stocks

Fatwaa ID: 1124

I did have a very simple question on zakat that you can reply at your convenience no rush. Regarding zakat on brokerage account used for buying and holding stocks. I understand there is no zakat on land or property purchased and only have to pay zakat on rental income earned from it. Why wouldn’t the same apply to brokerage account where I only pay on capital gains and dividends earned from this account. I purposely use my savings to invest in stocks and benefit from dividends payout since I don’t want to get into mortgage payments with investment property. I see both as tangible investments but for brokerage accounts I have to pay zakat on full value of account while property it’s only the rental earnings which in most cases is reinvested to avoid zakat.

In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

I make du’aa you are in the best of imaan and health.

Land and stocks are quite different from each other. Land in itself is not something that is zakaatable. A person may have dozens of plots and he will not have to pay zakaah on them. Land is only zakaatable if purchased with the intention of immediate resale as it then becomes a trade good.

Stocks on the other end contain zakaatable assets. To elaborate, either stocks are purchased for short term, in which case it is fully zakaatable as it is now considered a trade good. In this case, 100% of its value on the zakaah date is considered.

If the stock is purchased for long term, then the zakaatable assets of the company are zakaatable. Most companies have liquid/cash. That is zakaatable. Similarly, depending on the company, they will have different trade goods. They may also have other investments. These are zakaatable as well. Now, the exact ratio of that will differ from company to company. Some scholars have thus adopted a proxy of 25%, based on the average found in these companies. This 25% is for the zakaatable assets found in that company. This is aside from the zakaah on the dividends earned.
With mutual funds or etfs, they generally take the ruling of 100% as they tend to buy and sell short term.

The safest way to go with stocks is 100%. I personally go with this as well. However, as this could be a large number for some and perhaps difficult, the details above may be applied and opted for.

I hope that clarifies. Feel free to ask further if something is not clear.

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين


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