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Income purification

In one sentenceDisposing of the impermissible part of income, such as interest or returns from a prohibited activity, by giving it to charity without its owner benefiting from it.

Simply put

It usually happens when investing in shares of companies whose core activity is permissible but which have non-compliant side income (such as interest on deposits). Your share of this income is calculated and taken out of your profits.

In accounting: the amount to be purified is not income for the business; it is recorded as a liability and then paid out. The method for calculating the percentage is set by the Sharia board or the screening body it relies on, so do not work it out on your own.

Worked example

An investment fund received share dividends of 10,000 SAR, and the Sharia screening body reported that the company's impermissible income ratio is 3% (an assumed rate for illustration).

Dividends received10,000 SAR
Amount to be purified: 10,000 × 3%300 SAR
Net income: 10,000 − 3009,700 SAR
Given to charity and not counted as income300 SAR

Formula: Purification amount = income received × impermissible income ratio

Don't confuse it with

ZakatZakat is an obligation on permissible wealth at a set rate, while purification removes the impermissible part in full and is not counted towards Zakat.