DARUL IFTAA
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Question:
Assalamu Alaikum
Banks give interest in our bank accounts, so obviously that amount has to be taken out and given away to the poor.
However, there is a tax on that interest. For example, if they give an interest amount of K20,000 , they deduct 20% of the interest as tax, so basically you are left with K16,000 out of your total interest you were supposed to receive.
So when taking out the amount of interest to be given away, should we take out the full K20,000 or the balance given to us of K16,000?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
The tax which is deducted by the bank from the accrued interest is withholding tax which is mandatory. The equivalent amount of withholding tax does not need to be given in charity. Therefore, in the above example, you will give the balance of K16,000 in charity and not the whole K20,000. [1]
If this tax is however claimed back from the government [2], then that amount will then have to be disposed off by giving it to the poor and needy without any intention of reward.
And Allah Ta’āla Knows Best
[Mufti] Safwaan Ibn Ml Ahmed Ibn Ibrahim
Darul Iftaa
Limbe, Malawi
Checked and Approved by,
Mufti Ebrahim Desai.
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[1] Askimam