Question: An individual possesses $100,000 in liquid assets (cash) and has a mortgage with annual installments totaling $60,000, for ones calculation, does one deduct the annual debt obligation from the zakatable base? We seeing mixed opinions online. You have implied on parts of your QnA (on this site) that no deductions are to be made, is this correct? Are their multiple options and opinions, how to remove the confusion? It is not that i do not want to pay, just seeking clarity.

Answer: Within the Fiqh there are multiple opinions regarding how long-term and deferred debts affect liquid (cash on hand) wealth when calculating Zakat. These differences exist across the various schools of thought, and even within the Hanafi school itself ther e are multiple views. For many years, the stricter opinion has often been followed. Due to economic complexities and financial situations, some ‘contemporary scholars’ have presented a more lenient approach that may be used depending on one’s financial situation. This too is deduced from the sharia.

First position:
This position is from some of the ‘contemporary’ Hanafi scholars. It is based on the principle that Zakat is only due on wealth that is beyond one’s essential needs. Since mortgage installments for the upcoming year are obligations that must be paid within the current Islamic year cycle, this portion of wealth is not considered truly surplus. Therefore, a person may deduct the next 12 months of mortgage payments from their liquid assets before calculating Zakat.
Example:$100,000 (Total Cash/Liquid Assets) − $60,000 (Mortgage Payments for the Next 12 Months) = $40,000 (Net Zakatable Assets). Thus, Zakat Liability: $1,000 (2.5%)

Second Position: The more traditional view (that we have used):
This is the stricter classical opinion, historically supported by many scholars, including positions found among Maliki and Shafi jurists. According to this view, a mortgage is Dayn Muajjal (deferred debt). Since the full amount is not immediately due, it is not deducted from the zakatable amount. As long as the wealth remains in the owner’s possession, Zakat is due on the full amount.
Example: $100,000 (Total Cash/Liquid Assets) − $0 (No Deduction) = $100,000 (Net Zakatable Assets). Thus, Zakat Liability: $2,500 (2.5%)
So what should one do?
One should look at their specific situation: one can use Position I if things are financially tight, then gradually move toward Position II for greater religious precaution as their financial circumstances improve. Both are correct opinions. Look at your position and act accordingly.
Allah Certainly Knows Best.