The evidence for requiring a year to pass for wealth other than produce of the earth is the Prophet’s statement (peace and blessings be upon him):

“No zakat is due on newly acquired wealth until a year has passed over it.”

This wording is general, but produce of the earth is excluded by Allah’s words, Exalted is He:

“Eat of its fruit when it bears fruit, and give its due on the day of harvest.” [al-An‘ām: 141]

Livestock offspring are also excluded by consensus, on account of the Prophet’s statement (peace and blessings be upon him): “The offspring of every female share her status.” Profits on wealth are likewise excluded by analogy with this, though there is disagreement on this point. The hadith remains general in its application to everything else.

The evidence that freedom from debt is a condition for zakat to become obligatory on monetary wealth is the consensus of the Companions. This is established by the report that ‘Uthmān ibn ‘Affān used to proclaim to the people: “This is the month for your zakat. Whoever owes a debt should pay it, so that your wealth may be determined and you may pay zakat on it.” The Companions were still present in large numbers and assented to this, indicating their consensus on this position. Success comes from Allah.

Section on the Classification of Debts That Exempt Wealth from Zakat

According to Ibn al-Qāsim, debts that exempt monetary wealth from zakat fall into three categories:

The first is an outstanding zakat debt, which exempts wealth from zakat whether or not its owner has nonmonetary assets sufficient to cover it. This applies whether a year has passed since the debt was incurred—for example, someone possesses twenty dinars, a year passes over them, and he does not pay their zakat but retains them until another year passes. No zakat is then due on them because of his outstanding zakat debt for the first year.

It also applies if a year has not passed since the debt was incurred—for example, someone acquires twenty dinars and retains them for ten months, then acquires another twenty. When a year has passed over the first twenty, he does not pay their zakat, and he spends them or they are lost. A year then passes over the second twenty. No zakat is due on them because of his outstanding zakat debt on the first acquisition.

The second category exempts wealth from zakat whether or not a year has passed since the debt was incurred, unless its owner has nonmonetary assets sufficient to cover the debt, against which he allocates it. This is debt incurred for something other than the zakatable wealth in his possession.