Zakat on Rental Property:

There are two kinds of properties: those that the owner rents out and those that are for sale. A rental property falls under the category of a business, and the Zakat on the earnings from this property is mandatory. If the property is rented, the Zakat is due on the earnings; if the property is not yet rented and the owner does not intend to sell the shops, the Zakat on property’s value is not due.

Zakat on Land

There is no Zakat on the property that is not used for business. Personal residences, shops, and land are exempt from zakat. Zakat must be paid on land purchased for commercial purposes. Any property inherited from parents or family members is also exempt from Zakat. There is no Zakat on land, which is not commercial.

Zakat on Instalment property

The same rule applies to such property, even if purchased in instalments. Although many instalments are still owed, the buyer obtains ownership on the first day of the purchase or the contract of the purchase is signed between the buyer and the seller. The pending amount, however, shall be deducted from the total cost of the property, and the Zakat on property shall be due on the amount paid. Zakat applies if it is purchased for commercial purposes.

FAQ

The FAQ below are derived from a Darul Ifta.

Q. The land was purchased with the intention of never selling it, but after a few years, the decision was made to sell. Will it be subject to Zakat?

A. No, Zakat will not be required on this property. However, when it is sold out and the seller have cash in his or her hand, Zakat must be paid on cash.

Q. The piece of land was purchased with the intention of constructing a house or renting it out. Will it be subject to Zakat?

A. No. However, if the owner gets rent after the house is built, the owner has to pay Zakat, according to the rule, at the end of the year.

Q. The land was purchased with the intention of selling, but before a year had passed, the decision was made to hold it, either to construct the house or to rent it out. Is Zakat on property applicable?

A. If the buyer purchased it with the intention of using it for business but later changed his or her mind, no future Zakat will be due.

Q. When two partners, A and B, purchased a plot, A intended to sell it and profit from it for business purposes. While B had no intention of doing so, it was merely an investment. If the plot sells after a few years, what is the Zakat ruling for partner B?

A. The partner, whose intention was to make a profit by selling it, will have to pay the Zakat on his share of the land every year. And if his intention was not commercial, no Zakat will be levied on the value of his share. When the property is sold and the cash is in hand, Zakat will be paid on the cash according to the Zakat rule.