Firstly, keep in mind that zakat is obliged to one’s gold and silver, which is money in form of our modern currency. Also, to meet nisab, we can to add the value of the gold and silver to our cash (as well as trade assets if own a business).
With respect to credit line loan, if this is a short-term debt (i.e., due within a year), then we would deduct that entire amount before seeing if we have nisab or not.
If it is a long-term debt (due after one year), then we can deduct the upcoming monthly instalment, or at most up to one year. Aside from that amount, we would see if the rest met nisab or not to see if we owe zakat.
The scholars differentiate between two types of debts:
- Long-term debt: Which is a debt repaid in fixed instalments for more than a year such as mortgages from studying, buying a house, car and the like would be of this kind.
- Short-term debt: Which is a debt immediately due within a year. This differentiation is important when it comes to zakat since one can only subtract the entire amount if it is a short-term debt.
Long-term debts are not deductible, except for the immediate instalment.
Consider the following example:
- Assume the zakatable-minimum (nisab) is $2,000.
- One’s zakatable assets amount to $5,000.
- One has an outstanding mortgage of $50,000 with fixed monthly instalments of $500. This would be a long-term debt. As such one can only subtract the upcoming instalment of $500, and has to pay zakat on $4,500.
- A student-loan would be a long-term debt. Hence the entire debt is not deductible.
- However, if we have started repaying the debt, then it would be possible to deduct the upcoming instalment.