Zakaat On Provident Funds

There are two types of provident funds:

a. Compulsory provident funds wherein the company/government deducts a specified amount from the employee’s salary, whether he agrees with this funding scheme or not.

b. Optional provident funds wherein the company/government only deducts the amount from the salary, if the employee opts for this funding scheme willingly; otherwise, not.

In the former type, one will only discharge the Zakaat after receiving the funds and Zakaat for previous years will not be incumbent; having said that, as a precaution (and this is what Taqwa/piety demands), it would be better to discharge the Zakaat for previous years as well.

In the latter type, one will be obliged to discharge the Zakaat annually for the salary amount which was deducted willingly, if the amount deducted annually from the salaries is equivalent or more than the Nisaab amount or if one possesses the Nisaab amount beforehand, as this would be similar to the money kept in a bank account on which one is required to discharge Zakaat annually.