Does the existence of a debt prevent the obligation of Zakat on internal wealth (e.g., gold, silver, trade goods)?
Chapter on Zakat on Debt and Charity
Al-Mughni
Book of Zakat
Primary text
The existence of debt prevents the obligation of Zakat on internal wealth, specifically specie (currency) and trade goods. This is the single, reported opinion. This position is held by 'Ata, Sulayman ibn Yasar, Maymun ibn Mihran, Al-Hasan, Al-Nakha'i, Al-Layth, Malik, Al-Thawri, Al-Awza'i, Ishaq, Abu Thawr, and the proponents of the School of Opinion (Ahl al-Ra'y). The evidence is the narration reported by Abu 'Ubayd in Al-Amwal: Uthman ibn 'Affan stated, 'This is the month of your Zakat. Whoever has a debt upon him should pay it off so that you may bring forth the Zakat of your wealth.' In another narration, he specified, 'Whoever has a debt upon him should repay his debt, and then pay Zakat on the remainder of his wealth.' This was stated in the presence of the Companions without objection, indicating their consensus. Furthermore, a narration transmitted through the companions of Malik quotes the Prophet, peace be upon him: 'If a man possesses one thousand dirhams and owes one thousand dirhams, there is no Zakat upon him.' This narration is explicit.
Supporting text
The opposing view, held by Rabi'ah, Hammad ibn Abi Sulayman, and Al-Shafi'i in his later opinion, is that debt does not prevent Zakat. Their reasoning is that the individual is a free Muslim who possesses the minimum threshold (Nisab) for a full lunar year, thus Zakat becomes obligatory, similar to one who has no debt. Another supporting argument for the main view is that Zakat is commanded to be taken from the wealthy and distributed to the poor, implying that the debtor, who is in need of settling his obligation like a poor person or more so, is effectively among those for whom Zakat is intended, making him ineligible to be assessed Zakat. Zakat is only due on the truly wealthy, as per the tradition, 'There is no Sadaqah except from an excess of wealth.' The debtor has not attained the level of 'excess wealth' warranting thanks through disbursement.