Are Personal & Long-Term Debts Treated Differently in Zakat?

Yes, personal debts and long-term debts are treated differently when calculating Zakat.

1. Personal Debts

Personal debts, such as loans from friends or family, can be deducted from your Zakatable assets. These loans are recallable anytime, meaning the lender can ask for repayment immediately, regardless of the original terms.

For Example:

If a friend lends you PKR 50,000 with an agreement to repay in six months, they can still request the money back at any point. In this case, you would deduct PKR 50,000 from your Zakatable assets, and your friend would add that amount to theirs. 

The Zakat calculation adjusts as follows: you subtract PKR 50,000, and your friend adds PKR 50,000 to their total.

2. Long-Term Debts

Long-term debts, such as student loans or mortgages, are different because they cannot be called in for immediate repayment. The terms for these loans are extended over a longer period.

Scholars allow a deduction of up to 12 months' worth of non-interest payments for such debts before calculating Zakat. However, this deduction should only be applied if your financial situation is significantly impacted, such as if you are struggling to make repayments.

For Example:

If you have PKR 1,000,000 in assets today and owe PKR 1,200,000 in mortgage payments, you can either pay Zakat on PKR 1,000,000. 

Alternatively, you can subtract PKR 1,200,000 from your assets and avoid paying Zakat. But unless you're in a dire financial situation, like losing your job, this deduction should generally not be applied.

And Allah knows best!