Ruling on the zakat payer waiving his debt from a poor debtor and counting it as zakah
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Q109: The questioner, S. A. T. from the Republic of Sudan, says: I am a man who has been engaged in trade for seven years, and at the end of each year I used to take an inventory of the store contents to pay the zakah. Now I have decided to leave this business, and I have debts owed to me by some people. Is it permissible for me to leave them with them, considering them as zakah, or what is obligatory for me?
A109: Waiving debts does not suffice for zakah. The money in your possession must be subject to zakah, and you must pay zakah from it and from any other wealth you acquire. As for debts, their zakah is included in them. If these debts are owed by people
who are well-off, it is obligatory for you to pay zakah on them every year, whether you have collected them or not. However, if the debts are owed by people who are unable to pay, and you fear that you will not receive them or be able to collect them due to their inability to pay, then it is not obligatory for you to pay zakah on them unless you collect them. As for the debts of those who are able to pay, it is obligatory for their owner to pay zakah on them every year, whether he has collected them or not.
A109: Waiving debts does not suffice for zakah. The money in your possession must be subject to zakah, and you must pay zakah from it and from any other wealth you acquire. As for debts, their zakah is included in them. If these debts are owed by people
who are well-off, it is obligatory for you to pay zakah on them every year, whether you have collected them or not. However, if the debts are owed by people who are unable to pay, and you fear that you will not receive them or be able to collect them due to their inability to pay, then it is not obligatory for you to pay zakah on them unless you collect them. As for the debts of those who are able to pay, it is obligatory for their owner to pay zakah on them every year, whether he has collected them or not.
Source
www.alifta.gov.sa
The Arabic text is copied verbatim from the original source, without any edits.