Khums
On
The Surplus Or Profit Of The Income
A. WhenTo
PayKhums
Khums
becomeswajib
at the beginning of the new financial year on the profit or surplus of the past year's income.
Beginning
The“beginning”
of a new year means the time when the profit or surplus of the income becomes clear. So whenever there is profit or surplus of theincome,
and it is not used up on the household or commercial expenses of that year-- then pay one-fifth of it askhums
.
Year
The consideration of the“year”
inkhums
is because in most cases the surplus of the income becomes clear at the end of the year. Otherwise, thekhums
is actually associated with the profit or the surplus of the income as soon as itis known
, and the owner may pay thekhums
before the end of the year.
Hijrah
or Christian Calendar
Of course, oneis allowed
to fix any day of the year (or for that matter, the beginning of a fiscal year according to the Christian calendar) as the“beginning”
of his year. Then he may every year count the surplus of his income on that day and paykhums
. It is always easier to count from the day one starts earning.
B. Definitions of Income, Profit & Surplus
Khums
iswajib
on the profit or surplus of one's income after deducting the annual expenditure. To make the meaning of this sentence more clear, let me explain the definition of“income,”
“surplus”
and“expenditure”.
Income
Income means whatever you earn from business, wage or salary, dividend income, or by other means of possession recognized by theshari`
ah
.
Iskhums
alsowajib
on gift, prize, legacy, charity,zakat
andkhums
?
According to most presentmujtahids
, it isprecautionarily
wajib
to paykhums
from such items also.
By“legacy”
we mean anything bequeathed to a person in the will of a friend or of someone not related to him.
However, thekhums
is not liable on dowry or inheritance except when one inherits from the least expected person;
for example, a very remote relative from whom one does not expect to inherit.
By“dowry”
(mahr
)
we mean the marriage-gift which the husband agrees to pay to his wife at the time of marriage or whenever she demands it. In Islam,“dowry”
is notsomething which a woman owns at the time of divorce
or at the time of her husband's death; it is her right which she owns immediately after marriage has been consummated.
Surplus or Profit
In case of awage earning
person, the“surplus”
of the income means whatever remains after deducting the annual expenditure of oneself and one's dependents.
The“dependents of a person”
mean those persons whose maintenance is your responsibility. It does not make any difference whether the maintenance of these persons is obligatory on you (like wife,children
and parents) or not obligatory (like a relative, a friend or an orphan).
In case of abusiness person
, the“profit”
means whatever remains after deducting the annual business expenses which includes the person's salary.
C. The Deductible Expenses
Theexpenditure which is to be deducted from the income
is of two types: household expenses, and commercial expenditure.
1. The Household Expenses
(a) The Eligible Deductions
i
. The items:
The deductible household expenses include food, drink, accommodation, transportation, furniture, marriage expenses, medical expenses, payment ofsadaqah
, hajj,ziyarat
, gifts, donations and charity, paying debts, legal penalties, wages of servants, insurance premiums, the amount deducted from your salary for mandatory provident fund or for mandatory pension plan, income tax, etc.
In case of“paying debts”,
only the debts for the essential needs can be deducted from the income, not the payment of loan or debt which is for expanding the business, etc. In the latter case, first one has to paykhums
from the surplus of the income and then pay such debts from the remaining 80%.
The premiums paid for“permanent life insurance”
cannot be counted as deductible expenses, rather it is a type of“saving”
which will be paid either to the insured person himself (at the maturity of the policy) or to his heirs (in case of his death before the maturity). Like all the other savings, such insurance premiums are liable forkhums
.
But
the premiums paid for most of the other insurances like car, fire, medical and protection insurance can be counted as deductible expenses and deducted from the annual income.
In case of mandatory pension, you will count it as part of your income whenever you get it, and then paykhums
if you save anything from it in that year.
However, the non-mandatory“retirement saving plan”
is just like life insurance -- you have to paykhums
on the money that you set aside that year for your retirement saving plan. If you invest a large sum in such plans and thus find yourself without enough liquidasset
to paykhums
, then you should work out an installment plan to paykhums
in a few months time.
ii. Is there a limit in household expenses?
All these household expenses differ from person to person. The manner and amount of the expenditureshould be considered
according to the needs and status of the person himself.
For example, if a person's annual income is $ 20,000 and his needs and status require him to spend $ 10,000 on his annual household expenses, but he exceed his limit and spends $ 15,000 -- then he must pay thekhums
on everything over $ 10,000.
However, if he lives meagerly and only spends $ 7,000, then he must paykhums
on everything over $ 7,000. If his total income and his needs are equal, then there is nokhums
on him.
iii. CanI
deduct for the loss in household items?
If the loss is in anitem which
is neither for trade nor for household consumption, then you cannot provide compensation from your income before payingkhums
.
However, if the loss is in an item which is part of the household consumption (like furniture or clothes), then you are only allowed to replace those items by new ones or to repair them and count the cost of replacement or repair in the annual expenses.
(b) RulesOn
Household Expenses:
i
. Two sources of income
One is permitted to deduct the household expenses from the income even if he has some otherwealth which
is not liable forkhums
.
For example, Ahmad's annual expenditure is $ 10,000. He inherits $ 10,000 from his father, andhe also
earns $ 20,000 during that year. He has the option of either using the $ 10,000 inherited money for his expenditure and pay thekhums
from the entire $20,000 which
he earned that year; or deducting the $ 10,000 for his annual expenditure from his income, and paykhums
from the remaining $ 10,000 which is the surplus of the income. The $ 10,000dollars which Ahmad inherited
is not liable forkhums
.
ii. New unused household items
All new items that have not been used (even once) by the end of yourkhums
year must be counted as your savings.
For example, Ahmad has fixedthe 30th of June
as the end of his“year”
. On that day he realizes that he still has, for example, 10k.g
. sugar, 5k.g
. salt, 20k.g
. rice which has not been used in the“previous year”
. In such a case, he cannot deduct the price of these remainingfood stuff
from the profit or the income of that year. He can only deduct the price of thefood which
had been consumed in the year which ended on 30th June. Therefore, these food items must be included in calculating his annual savings.
iii. An earning woman
It iswajib
on an earning woman to paykhums
from the surplus of her income if she is the provider of the family. If her husband or father is the provider, then she has to paykhums
from the entire amount of herincome which
is in excess to her own expenses.
If a non-earning woman gets some wealth from her husband or from any other person, then it iswajib
to pay thekhums
from it provided it is more than her annual expenses. This does not apply to dower orinheritance which
is not liable forkhums
.
iv. Income of a dependent
The same applies to the income of the person whose expensesare provided
by someone else. For example, an earning person whose expenses are being provided by hisfather;
he has to paykhums
from the surplus of his income.
v. Two income
family
If the husband and wife both are earning, and both of them contribute in the family expenditure, then practicallykhums
has tobe paid
by calculating the total income and then deducting the total expenditure of both of them collectively.
(In theory, the amount spent by the wife on household expenses will be considered a gift to the husband -- who isIslamically
responsible for family maintenance -- and thus his income, and consequently hiskhums
, will increase.)
vi. A minor's income
Khums
is notwajib
on a non-baligh
child (boys becomebaligh
at completion of fifteen lunar years and girls at completion of nine lunar years) or an insane person. So if a non-baligh
or an insane person gets any wealth which is more than his or her annual expenses, then there is nokhums
on that wealth at that time or at the time when he or she becomesbaligh
or sane respectively; or for that matter, it is notwajib
even on their guardians.
vii. Family allowance
In many western countries, the parents get financial allowance for their child/ren
from the government. Is this income eligible forkhums
? Such a parent has two options:
Either the parent spends the money for the child's maintenance; in this case, the family allowance has to be included in the income of the parent andcounted
accordingly.
Or
the parent keeps the money aside for the child. In this case, it is not eligible forkhums
. However, if the child isbaligh
, thenkhums
has tobe paid
on the allowance if it is not used by the end of the year.
viii.Khums
in a person's estate
If a person dies before the end of his fiscal year, then how is his estate tobe divided
? First, his heirs should deduct his expenditure of that year up to the time of his death from his legacy. Then paykhums
from the surplus of his remaining income. Only then can the heirs take their shares from the estate.
If the heir knew that the deceased had not paidkhums
from his estate, it isprecautionarily
wajib
on them to pay thekhums
before dividing the estate.
2. The Commercial Expenses
(a) The Deductible Expenses:
This covers every expenditure in the way of business: wages or salaries of the employees, rent, insurance premiums,taxes
demanded by government, purchasing machines and the expenditure of their maintenance, etc.
(b) RulesOn
Commercial Expenditure:
i
. Investment capital:
If a person who needs a capital to sustain himself and his family gets a capital, then:-
if
the capital is not more than his annual expenditure, then he can use that capital to trade with, and there is nokhums
on it. For example,Zayd
the needy gets $ 10,000 as gift from a friend and his necessary annual expenses are $ 11,000 -- then, there is nokhums
on that amount if he uses it as a capital for trade, etc.
if
that capital is more than his necessary annual expenses (for example, ifZayd
got $ 15,000), then he may use the capital only after paying thekhums
from the amount which is more than his annual expenses (in the above example, on $ 4,000).
If such a person is not in need of the capital, then he can use that amount to expand his already-existing business or to earn extra income only after payingkhums
from the entire amount.
ii. Increase in by-product of akhums
-free commodity:
If someone has an item which is not liable forkhums
(or, if liable, it was paid) and there is an increase in it in form of by-products, then it iswajib
on him to paykhums
from the by-products of that item.And
, in this case, it does not matter whether the by-product was a“separate by-product”
like calf and milk of cow, wool of sheep or“connected by-product”
like fruits on a tree.
iii. Increase in market value of akhums
-free commodity:
If the market value of a commercial commodity increases, without any increase in its by-product, then:-
if
he had bought it for business, then it iswajib
to paykhums
from the increased value provided it stays 'increased' till the end of thekhums
year;
if
he had bought it, but not for business purpose, then it will becomewajib
to paykhums
from the increased value only when he sells it.
if
he has not bought it but came to own that item by inheritance, etc., thenkhums
is not liable on its increased market value even if he sells it.
iv. Depreciation in or loss of a commodity:
If there is a decrease in the capital, oneis permitted
to make it up by deducting that amount from the profit of that year before payingkhums
.So
this adjustment for depreciation can be regarded as the“expenditure of commercial production”
on whichkhums
is not liable.
(Someone buys a commodity for business, then its market value increases during the year and he does not sell it due to negligence or in anticipation of further increase in its price, then by the end of the year its price again decreases to the same value -- then there is nokhums
on previously increased value.But
, as mentioned in No. iii above, if the increase in its market value remains the same up to the end of that year, then he has to pay thekhums
from its increased value.)
v. Compensation for the loss:
Can one deduct the compensation for the losses of his property from the annual profit or income and count it as a part of his“annual expenses”
? If the insurance does not compensate the loss, then there are three possibilities:-
if
the loss is in an item which is a part of goods for trading and the trading is restricted to one type of commodity, then one is allowed to provide compensation for the destroyed goods from the profits before paying thekhums
.
For example, if a person's trading was limited to buying and selling of sugar and it happened that, during the year, part of it was destroyed by being sunk or he made loss on its sale, then he is permitted to provide the compensation for its destruction or loss from the profit or the income and count it in the annual expenditure.
if
the loss occurs in a commodity of a trader whose trading is not restricted to one type of commodity, then one is allowed to provide compensation from the profit before payingkhums
. However, it isprecautionarily
better not to deduct the compensation for the loss of one section of the trade from the profit of another before paying thekhums
.
if
the destruction or loss occurred in a trading commodity, while the trader made profit from activities outside trading such as agriculture or the like, in such a case, it isprecautionarily
better not to provide compensation for his trading loss from his agriculture profit before paying thekhums
.
vi. Selling an item on whichkhums
iswajib
:
Ifkhums
becomes liable on any item of trade, it isharam
to sell it before paying itskhums
. However, if one sells it to aShi`ah
before payingkhums
, the transaction will be valid and the seller will have to pay thekhums
from the price of that item.
vii. Partnership with one who does not paykhums
:
There is no harm in becoming partner of a person in trade or business who does not paykhums
–
“no bearer of burden shall bear the burden of another.”
(53:58)
D. I Never PaidKhums
Before
A person who has never paidkhums
in his life and then, by the grace of Allah, decides to paykhums
, for such a person there are the following possibilities:-
It iswajib
on him to pay thekhums
from every item which he has bought,built
or planted and which is also in excess to his needs. For example, an apartment bought for renting purpose or a taxi for transportation business.
If such items are among his needs (for example, his ownhouse
or his own car) then:-
if
he has come to own these items from the profit or the surplus of the income of that same year, then there is nokhums
on them. For example, in 1965, he earned $ 25,000 and in the sameyear
he bought a car for $ 7,000 from that income, then there is nokhums
on his car.
if
he has come to own these items from the accumulated surplus of previous years, then it iswajib
to paykhums
from those items also. For example, from 1960 to 1965, a person annually earned $ 20,000. Then at the end of 1965, he buys a house of $ 80,000. It is obvious that this housewas not bought
from the income of a single year. In this case, he has to paykhums
on $60,000 which
was definitely from the savings of the previous years.
If a person's income was not stable, in some years he had profited and in some he had been in loss, and he cannot determine whether he bought his various properties in the year of profit or loss -- then, such a person should explain his circumstances to themujtahid
and come to a compromise with him about the amount ofkhums
.
Thiscan be done
by personal contact with themujtahid
or by corresponding with him or his authorized representative. (Most leadingmujtahids
have their authorized representatives in major parts of theShi`ah
world.)
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Author: Sayyid Muhammad Rizivi
