If you've ever sat down to calculate your zakat and found yourself staring at a mortgage statement or an unpaid loan from a friend, you're not alone. Zakat on debt is one of the most commonly misunderstood areas of Islamic personal finance and unfortunately, confusion here can lead to either underpaying or overcomplicating the whole process.

Once you understand the basic framework, it becomes much clearer. This guide breaks down exactly how to handle debt on both sides of the ledger: what you owe and what others owe you.

Think of It Like a Balance Sheet

When calculating zakat, scholars across all major madhabs agree that you need to look at two sides of your financial picture:

• Liabilities: the debts and obligations you owe to others
• Receivables: the money others owe you

Both sides matter, and both are handled differently in Islamic jurisprudence. Let’s start with what you owe.

Zakat on Debt You Owe: Can You Deduct It?

Having debt does not automatically exempt you from paying zakat. Many people assume it does, but the scholarly consensus, particularly among contemporary scholars, is more nuanced than that.

The general principle is that you can deduct liabilities that are currently due or coming due in the near term, typically around your zakat calculation date. These are what scholars call "deductible liabilities."

What Counts as a Deductible Liability?

Generally speaking, the following expenses qualify for deduction when they are currently due and payable:

• Credit card balances due now
• Personal loan installments coming up
• Business operating expenses that are immediately owed
• Rent currently due
• Utility bills that are payable
• Tax obligations due soon

What About Long-Term Debts Like Mortgages and Student Loans?

If you have a £400,000 mortgage or a large student loan, you cannot deduct the entire outstanding balance from your zakatable wealth. The reason is rooted in sound logic: zakat is assessed on your current net wealth, not on a 20- or 30-year debt journey you haven’t completed yet.

Most contemporary scholars permit deducting only the payments due within the next 12 months, or the next installment that’s coming due. Nothing more.

A Simple Credit Card Example

Let’s say your zakat date arrives and you have:

•£15,000 in savings

•£3,000 in credit card payments currently due

You may deduct that £3,000, bringing your net zakatable wealth to £12,000. Zakat at 2.5% would be £300.

One note: there is some scholarly disagreement about whether a credit card bill that isn’t yet due can be deducted. The majority position is that only currently-due amounts qualify.

Zakat on Money Others Owe You (Receivables)

Now let’s flip it. What about money sitting in someone else’s hands — a loan you gave a friend, a payment a client owes you? Does that count as your wealth for zakat purposes?

The short answer is: it depends on how likely you are to actually get it back.

Strong Receivables (Likely to Be Repaid)

If the borrower is financially stable and repayment is reasonably expected, most scholars — as discussed in classical references like Al-Mughni — say you must pay zakat on that amount annually. The money is still yours; it’s just temporarily in someone else’s possession.

So if you lent a colleague £10,000 and you’re confident they’ll repay it, that £10,000 stays in your zakatable wealth calculation every year until it’s paid back.

Weak or Doubtful Receivables (Unlikely to Be Repaid)

If the borrower has gone bankrupt, disappeared, or repayment is genuinely uncertain, most scholars say you don’t need to pay zakat annually on that amount. It’s not really accessible wealth at that point.

However — and this is important — if you later recover that money, you’ll owe zakat for one year on it, regardless of how long it was outstanding.

Don’t Forget Business Receivables

Business owners often overlook this one. If your business has outstanding invoices or accounts receivable that you reasonably expect to collect, those amounts are generally zakatable.

For example, if clients owe your business £50,000 in collectible invoices, that sum should be included in your zakat calculation. It’s your wealth — it’s just not in your bank account yet.

What If You Borrowed Money That’s Still in Your Account?

Here’s another scenario worth understanding: you took out a personal loan and the cash is sitting in your account. Do you include it in your zakatable wealth?

Yes — the cash counts as an asset. But the loan counts as a liability. So you’d include the cash, then subtract the eligible deductible portion of the loan, giving you your net zakatable wealth. The same logic applies whether you borrowed from a bank, a family member, or anywhere else.

The Mortgage Myth: “I Have a Mortgage, So I Don’t Pay Zakat”

This is one of the most persistent misconceptions in zakat calculations, and it’s worth addressing directly.

Having a mortgage does not eliminate your zakat obligation. If you have £100,000 in savings and a £400,000 mortgage, you cannot offset the full mortgage balance against your savings. You’re left with a net of –£300,000 on paper, but that’s not how zakat accounting works.

As with all long-term debt, most scholars only allow you to deduct the portion due in the coming year or the next payment installment. Zakat is a yearly obligation — it doesn’t factor in the entire arc of a three-decade mortgage.

Click here for Musaffa’s Zakat Calculator

Student Loans: Same Principle Applies

If your student loan repayments are deferred and no payment is currently due, many scholars say you cannot deduct the full loan balance. But if a payment is actively due or coming up soon, that installment may be deductible.

The principle is consistent: only what is presently owed affects your zakat calculation, not the total debt you’ll eventually repay over many years.

What Happens with Bad Debt You’re Owed?

Sometimes people don’t repay. If someone owes you money but they’re bankrupt, refusing to pay, or you’ve genuinely written it off, you don’t pay zakat on it annually.

But scholars are unified on this: if you eventually recover the money — however long it took — you owe zakat for one year on whatever you recover. It’s a fair and practical ruling that accounts for the reality of uncertain financial situations.

Putting It All Together

Zakat on debt isn’t as complicated as it first seems once you internalize a few core principles:

Debts you owe: only deduct what is currently or imminently due — not the full balance of long-term loans

Money others owe you: include it in your zakatable wealth if repayment is likely; exclude it if repayment is genuinely doubtful

Business receivables: collectible invoices and accounts receivable count as zakatable wealth

Mortgages and student loans: these do not wipe out your zakat obligation — only the near-term portion is deductible

Recovered bad debts: zakat is owed for one year once the money is back in your hands

Getting your zakat right is both a religious responsibility and an act of financial honesty. If your situation is particularly complex — multiple loans, business receivables, disputed debts — it’s always worth consulting a qualified scholar or Islamic finance advisor who can apply these principles to your specific circumstances.

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