2. Expenses that are
Exempt from Khums
Since Khums is levied on the surplus of
gains, profits made on these gains are not subject to Khums
immediately; the lapse of one year should therefore be taken
into account. The objective being that enough time is allowed
for the mukallaf to spend, of these profits, on his
requirements, as well as his business. Should there be any money
left over at the end of the financial year, Khums has to be paid
on them. That said, we should list down that which is considered
of "living expenses" so that it be exempt from those profits.
Expenditures that is
exempt from profits are of two types:
a. What is spent in the process of making a
profit, such as expenses on the tools, equipment, and machinery
of trade/business. So is that which is spent in repairing,
maintaining, or replacing such items, or buying fuel and the
sort for them. Such expenses as employees' wages,
transportation, storage, outlets, taxes, etc. are also deducted
from the profits, whether same were spent, at intervals, during
the year or paid as a lump sum at the end of the year, such as
The exemption of such expenditure is not
confined to the year it is incurred. Should profit be not
forthcoming until the second or third year, for example, all
expenditure in the first year of business is covered by such
expenditure in a general sense. We will discuss this aspect in
some details in the chapter dedicated to business.
b. Annual living expenses, i.e. all that
which is spent during the year on oneself and members of one's
family, including that which is spent in charity, presents,
prizes, hospitality, settling one's obligations, such as nadhr,
kaffarah, payment of debt, expiation or compensation, what is
lost or damaged, be it inadvertently of intentionally.
Included in such expenses are cars, servant,
furniture, items of ornamentation, what is spent for marrying
one's offspring, of which is providing them with accommodation,
and setting them up in business or securing jobs for them.
What are exempt also are expenses paid for
carrying out acts of worship, such as hajj and paying homage to
the holy shrines, be it obligatory or voluntary.
There are though many other avenues of
expenditure which vary from time to time, generation to
generation, and society to society. Yet, the yardstick in
determining the exemption is that the expenditure must be
commonly recognized as such. Whether spending in that sphere is
obligatory, voluntary, makrouh, or lawful is immaterial.
However, exempting such expenditure is
conditional on it being actually spent and that it was met from
the profits made. Suppose that someone donated to another all
that what is needed for their annual maintenance, or part
thereof, or they economized to save some money, they should not
be exempt form paying Khums on the amount saved. Moreover, so
long as the money is still surplus to one's needs, it remains
liable for payment of Khums. For example, a person set aside an
amount to spend it for their hajj; should they change their mind
and not embark on the journey, for this reason or the other,
that amount is deemed surplus, in which case it should be Khums
taxed, should it remain thus at the end of the year, i.e.
without spending it in any other avenue.
95. Payment by cheque is quite common theses
days. Suppose that a person wrote a cheque of a certain amount,
such as that for his living expenses; he made arrangements with
the bank that the amount be debited to his account before the
end of the year. Perchance, the transaction took sometime,
missing the specified dated. The owner should pay Khums on this
amount. The reason being that issuing a cheque per se does not
render the amount outside the pale of the owner's property. It
should be so, after the amount is debited to the person's
account and transferred to the party in whose favor the cheque
96. Should the mukallaf go over the top and
spend more than his peers in social standing, what he spent
should be considered as extravagance. Included in this is what
is spent by way of harram, such as dinking alcohol, gambling…
etc. In such a case, it would not count as part of one's normal
expenses; neither would it be exempt from profits. The mukallaf
should take the initiative to assess the amount unlawfully
disposed of, assume it is still in his possession, and pay Khums
Exceptionally high donations for charitable
causes, throwing lavish parties… etc., of the type that is not
commensurate with the person's social status, are not counted as
normal expenses, neither are they exempt from profits.
Conversely, exempting such donations and hospitality expenses is
97. It has already been stressed that nothing
is described as living expenses, unless it serves a purpose of
living in the process. Such a need would be satisfied when that
expense uses. "Use" is a diction, which is going to be used a
lot; what it means is how the person goes about using his money
for his annual living expense.
Accordingly, any property, in the hands of
the mukallaf, be it a capital asset, such as a house not taken
for residence, a suit he has not used during the year, or money
lying around, such would be described as surplus to one's yearly
provisions, and would therefore attract Khums, by virtue of not
using same. For the "use" to materialize, it is not necessary
that the mukallaf uses it himself; it suffices that any of his
dependents uses it.
The exemption of this rule is non-ability of
the mukallaf to meet his requirements at one go, rather
gradually, such as building a house, providing for one's
wedding.. etc. the reason being that what the mukallaf finishes
in part counts as part of his living expense, although he is not
in a position to use it. This is on condition that the money is
actually spent in that avenue, as will be elaborated later.
Of the exempt things also is what the
mukallaf uses occasionally, such furniture, utensils, and
appliances intended for the use of guests. Should a year pass on
their purchase without their being used by any guests, there is
no harm in considering them as part of general living expenses,
whereby no Khums should be paid on them. Of the same class are
books, although the students require, yet are not used until the
end of the year, and so on and so forth.
The principle is that the wider the time span
for using the item, so much so that it overtakes the turn of the
year, or the need is above the capability of the mukallaf that
he cannot meet it from the profits of the year, "use" should not
count as a condition in the expenses exempt that year.
There may be more about this subject to
contend with in the forthcoming treatises.
98. Expenses exempt from Khums are not
confined to the money gained and spent on one's needs; rather it
covers debt incurred as a result of, say, medical expenses,
buying a car, etc, or payment emanating from religious
commitments, such as kaffarah, raddil madhallim… etc. which are
considered part of the provisions of his current year. Should
the debt be paid out of the profits he made during the year,
they are exempt. Indeed, all debt incurred in the previous years
should exempt if it is settled from the profits made in the year
in hand, barring the debt of Khums which has a different set of
rules. This is going to be the subject of the coming paragraph.
Should the mukallaf be intent on not paying his debt from the
profits of this year until it draws to an end, he may do so.
However, if the debt was incurred during the year in hand, he
should overlook at the end of the year, whereby he is exempt
from paying Khums on the amount of debt. Whether the debt was
incurred prior to his making or after it is immaterial. Previous
years debt is not exempt, unless same is paid back to the
creditors. It is noteworthy that any debt incurred in this year
and carried forward to the next, cannot be exempt for a second
year running, and so on.
99. As promised, we now
turn to discussing the outstanding Khums from previous years.
Khums may become due on the mukallaf on the
gains of the year in hand, but he decides not to pay it. This
could be with the permission of the Marji' who grants him a
reprieve, provided he pays later, or it could be due to
disobedience and apathy. This could lead to years on end without
the mukallaf's paying. Once the mukallaf repents, Khums remain a
debt on his shoulders. However, he may clear this debt when he
becomes financially able to do so, regardless of the cause of
Should he decide to pay his debt of Khums
from the profits of the current year, he should not expect to be
exempt of the profits and forgo the payment of Khums. There are
though two possibilities:
i. The items on which the Khums has become
due are still in his possession intact. Among such items of
assets are real estate, land, cars, books, currency etc. The
mukallaf is required to pay Khums on the amount of Khums (for
these assets). i.e. equivalent to one quarter.
For example, someone bought a property either
for business or residence. The price they paid for it was, say,
US $50,000. They did not pay the Khums of 10,000 on it in the
year they bought it, neither from the property itself nor from
any other source of profit that year.
Now, suppose that person made some profit in
the following year and decided to pay the outstanding Khums. He
should be paying the $10,000 plus 20% of the original price of
the property, i.e. $50,000.
The reason being that since the property
remained in the hands of the mukallaf alongside its Khums until
its second anniversary, without paying the Khums for it, this
should mean that he did not dispose of the amount of Khums,
which may be considered as part of his living expenses. Should
he decide to pay it from the gains of the year in hand, Khums
must not be waived, i.e. it is treated in the same way as his
other debts. He must pay Khums on it to start with, then settle
it as a debt the Khums of the property.
ii. The capital asset, which carries a Khums
liability, could have been lost of damaged after the year in
which the profit was made. The outstanding Khums should take the
form of debt on the mukallaf. If he decides to settle this debt
from the gains of future years, he is required to pay 20% not
25%, i.e. payment of the Khums without the need to add up the
Khums on the amount of Khums. This is because that the
outstanding Khums is no longer representative of the actual
capital asset which is no longer there physically. Accordingly,
the outstanding Khums is treated as part of one's expenses,
which is exempt from taxing it and overlooked from not being
part of the gains of that year.
For example, a person purchased books for
business or just to keep them. After Khums has become due on
them, they were damaged; that is, after the lapse of one year in
their hands. Khums was not paid on time. Should the person
decide to pay the outstanding Khums from the gains of future
years, he should pay the amount of Khums, i.e. without the extra
amount of Khums on Khums.
The same applies, if the person has sold the
books making some profit in the process, which he spent during
the year. No additional amount of Khums on Khums should be
warranted; just the Khums on the books before the money was
The ruling in the above cases is one for the
Khums on commercial activity which ends up as debt and the
other, which was earmarked for one's expenses but remained
unused, i.e. surplus.