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Zakat On Pension And Other Post-Employment Benefit Plans
As Salaam o Alaikum,
Dear brother, please clarify the following. On retirement from government service, is zakat applicable on lumpsum (one time payment) amount received as (I)retirement gratuity, (ii)commutation of pension, (iii)leave encashment and (iv)deposits under General Provident Fund, although the same is exempted under government rules. And if so, what is the rate percentage in each of these cases.
Jazakullah Khair.
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1 Reply
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Zakat On Pension And Other Post-Employment Benefit Plans
updated 1 year, 6 months ago
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If they are exempted from taxation by the state, then they will be considered exempted from Zakat as well. But if they are not exempted, then the following treatment would apply to such amounts:
Pension and other similar post-employment benefits are subjected to 10% production zakat, however, it only becomes due when you receive the pension. The principle is that for zakat to be due on an asset/earning, it has to be at one’s disposal (tasarruf). If the funds are at your disposal then Zakat will be levied on that amount, initially 10% production zakat on gross amount and if it stays with you till year end and becomes a part of your wealth, then 2.5% Zakat will also be levied being Zakat on Assets/Wealth at year-end.
It must be noted that taxes paid to the state in any form are eligible for deduction from Zakat obligation.
Please also see for Pension:
Complete Law of Zakat in summarized form:
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