Surplus or Profit In case of a wage earning person...

Surplus or Profit In case of a wage earning person, the "surplus" of the income means whatever remains after deducting the annual expenditure of oneself and one's dependents. The " dependents of a person" mean those persons whose maintenance is your responsibility. It does not make any difference whether the maintenance of these persons is obligatory on you (like wife, children and parents) or not obligatory (like a relative, a friend or an orphan).

In case of a business person, the "profit" means whatever remains after deducting the annual business expenses which includes the person's salary. C. The Deductible Expenses The expenditure which is to be deducted from the income is of two types: household expenses, and commercial expenditure. 1. The Household Expenses (a) The Eligible Deductions i.

The items: The deductible household expenses include food, drink, accommodation, transportation, furniture, marriage expenses, medical expenses, payment of sadaqah, hajj, ziyarat, gifts, donations and charity, paying debts, legal penalties, wages of servants, insurance premiums, the amount deducted from your salary for mandatory provident fund or for mandatory pension plan, income tax, etc.

In case of "paying debts", only the debts for the essential needs can be deducted from the income, not the payment of loan or debt which is for expanding the business, etc. In the latter case, first one has to pay khums from the surplus of the income and then pay such debts from the remaining 80%.

The premiums paid for "permanent life insurance " cannot be counted as deductible expenses, rather it is a type of "saving" which will be paid either to the insured person himself (at the maturity of the policy) or to his heirs (in case of his death before the maturity). Like all the other savings, such insurance premiums are liable for khums.

But the premiums paid for most of the other insurances like car, fire, medical and protection insurance can be counted as deductible expenses and deducted from the annual income. In case of mandatory pension , you will count it as part of your income whenever you get it, and then pay khums if you save anything from it in that year.

However, the non-mandatory "retirement saving plan" is just like life insurance -- you have to pay khums on the money that you set aside that year for your retirement saving plan.