Category: Financial Transactions
Fatwa#: 36420
Asked Country: India

Answered Date: Aug 01,2016

Title: Zakaat on pension/provident fund

Question

Assalamu Alaikum.

Question 1 : Is Zakat applicable on PF?.

PF has 2 components, one component is from Employer ( which is also from Employee salary Package) and one component is from Employee salary. This is mandatory and every employee will go thru PF.

We can withdraw PF after 5 years of Tenure in the Organization. Now my question is, provided if you dont withdraw PF amount, Will I be required by Zakat for the PF amount accumulated every year?. or Do i need to wait for the PF withdrawal or PF settlement (during retirement) and pay Zakath for that amount there on?. There has been different opinon regaridng the same. Request your explanation on this?.

Vassalam

Answer

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuhu

Your question refers. We are unsure whether you refer to pension or provident fund. Nevertheless the ruling for both will be the same. Provident funds are of two types: voluntary and compulsory. If the provident fund was compulsory and you had no choice, then the funds issued by the provident fund will be considered as a gift from the government/employer. You will not have to pay Zakaat on compulsory provident funds for the previous years you were invested with the fund. You will only calculate your Zakaat on the funds cashed out from your account for the current year based on your personal financial situation. However if the provident fund was voluntary, then it will not be permissible to participate in the fund since the majority of funds are invested in impermissible conventional financial institutions. One should dispose of the dividends accrued of such provident funds and pay Zakaat on the capital amount beginning from the year one started investing in the pension fund. Therefore one will pay Zakaat on the previous years on the capital amount invested if the provident fund was voluntary.

 

 

And Allah Ta’āla Knows Best

Ismail Desai,

Darul Iftaa

 

Checked and Approved,

Mufti Ebrahim Desai.

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