Assalam O Alaikum Mufti Ikram,
My question was regarding paying zakah on a deposit that is of fixed length (1 year) in an islamic bank and pays profits (not interest, this is variable and based on islamic principles) quarterly. My question is if Zakah is payable on the Prinicpal amount or is it only payable on the profit? There's an interesting perspective that I read based on Sh. Qaradawi that the treatment for fixed long term investments (stock market) can be treated similar to the concept of having land that is used for farming, in which case Zakah is payable only on the earnings but not on the land itself.
Please let me know your perspective.
If you purchased something with your investment money and then you are making profit from that then the Zakah will be required only on the profit. If your investment is in form of stocks or other tangibles then the Zakah will be required on the profit plus the invested money. In this case the whole investment will be treated as business inventory and there is 2.5% of Zakah on the business inventory.
Therefore, you are required to pay Zakah on all the money that you have deposited in long term investment accounts plus the profit that you earn minus that which has already been used.
And Allah knows best.
Mufti Ikram ul Haq
Fatwa Center of America