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Subject : Zakah on Severance Pay, Retirement and Savings Compensation

Fatwa Number : 3320

Date : 19-09-2017

Classified : Current Issues concerning Zakat

Fatwa Type : Search Fatawaa

Question :

What is the Islamic ruling on the Zakah on severance pay, retirement compensation, pensionable salaries, and savings compensation?

The Answer :

All perfect praise be to Allah, The Lord of the Worlds, and may His peace and blessings be upon our Prophet Muhammad and upon all of his family and companions.

The above compensations go under the umbrella of a social insurance system governed by regulations that make an employee`s best interest a first priority where monthly deductions from his salary are tantamount to insurance installments that become his once he receives them (Possess them).

Accordingly, Zakah (Obligatory charity) is only due on the above along with their revenues when they reach Nisaab (Minimum amount liable for Zakah) and one lunar year elapses on possessing them. During its sixteenth session, the International Islamic Fiqh Academy adopted a resolution that read as follows: " Zakah of severance pay and retirement compensation isn`t due on an employee during his service because these sums aren`t actually received by him (not in his possession)."

Similarly, Zakah is only due on pensionable salaries when they reach Nisaab and one lunar year elapses on them while in an employee`s possession.

As regards the compensation from the savings fund, if the employee can take it whenever he wants, then he should pay its Zakah every year, but if he isn`t at liberty to do so, then he should pay its Zakah for one time only upon collecting it or being at liberty to do so." And Allah the Almighty knows best.



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