He—may Allah have mercy on him—was asked:

“If someone forgives a debt owed by a person in financial hardship, may he count it toward his zakat?”

He replied:

As for forgiving a debt owed by someone in financial hardship, this does not discharge the zakat due on assets in hand, and there is no disagreement about this. However, if someone is owed a debt by a person eligible for zakat, may he forgive an amount equal to the zakat due on that debt and count this as its zakat? Scholars within Ahmad’s school and elsewhere hold two opinions on this. The stronger opinion is that it is permissible, because zakat is founded on sharing one’s wealth with those in need. Here, he has given something of the same kind as what he owns.

This differs from the case of someone whose wealth consists of assets in hand but who gives a debt owed to him instead. What he gives is inferior to what he owns, so this amounts to giving inferior wealth in place of good wealth, which is impermissible. As Allah Most High says:

“Do not deliberately choose the inferior part of it to give away”—to the end of the verse.

Thus, someone paying zakat must give from the same kind of wealth that he owns, not something inferior to it. If he owns good-quality fruit and wheat, he must not give inferior produce as zakat on them.