If after deducting the amount of any outstanding debt, if a person still has nisab, they will pay zakat. Otherwise, they will not. However, there is a difference of opinion how much of a long term debt (debt being paid off over multiple years) should be deducted.

In principle, when calculating whether a person is required to pay zakat or not, they would assess whether their net zakatable assets are equivalent to nisab or not.

To understand the jargon above, let’s break down the following terms:

Nisab: is the threshold stipulated by shari’ah that makes a person responsible for paying zakat. Nisab is roughly the value of 85 grams of gold or 595 grams of silver.

The value of nisab regularly fluctuates. As an example, let’s say we check the value of 85 grams of gold today and it is \$5000 dollars. That would be the nisab threshold that if a person possesses, they would be responsible to pay zakat.

Zakatable assets: not everything you own is calculated when assessing whether you owe zakat. Things that you use like your house, car, clothes, etc. are not considered zakatable assets. Therefore, do not include them when calculating zakat.

Examples of common zakatable assets are cash, gold, silver, stocks, crypto, and business inventory.

So let’s say Zaynab has:

\$5000 cash

\$1000 worth of gold

\$2000 worth of crypto

Zaynab’s zakatable assets are \$7000. Continuing with the nisab example above, this amount is above nisab.

What do you mean by “net zakatable assets”?

A person will deduct any loans they owe when calculating how much zakatable assets they have. If after deducting, they are below the nisab threshold, they will not be liable to pay zakat. Otherwise, they would.

For example, let’s say Zaynab had outstanding credit card debt of \$3000. Her net zakatable assets would be:

\$7000 (zakatable assets) - \$3000 (debts) = \$4000 (net zakatable assets)

Since Zaynab’s net zakatable assets are below the gold nisab of 5000 dollars, she would not be responsible to pay zakat.

So are long term debts (debts being payed off over multiple years) also fully deductible?

There is a difference of opinion regarding this:

1. Some scholars say that long term loans should not be deducted at all besides whatever is owed that month. This is because people have huge mortgages and student loans, yet can live very comfortable and luxurious lives. If a long term loan was fully deductible, this would make people who are living extremely comfortably zakat eligible instead of liable to pay zakat!
2. Some scholars say to deduct what a person expects to pay the upcoming year.
3. Some scholars say to deduct the entire debt similar to short term debt.

There is a fourth view as well and this is a view I personally lean towards as well. That is that the amount deductible should depend on how actively a person is trying to pay it off.

If a person is actively trying to pay off their long term debt (and is not only sticking with the scheduled payments), they should deduct the entire debt. And if they are not actively trying to pay it off (just doing the bare minimum scheduled payments), they should only deduct the upcoming year. After deduction, if their net zakatable assets are above nisab, they will pay zakat. Otherwise, they won’t. Since student loans are a form of long term debt, the amount deductible should be assessed in light of the above details.

And Allah knows best.

Omar Baig