Q: Can interest earned be used to pay tax in a non-Muslim state?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: Any interest earned on bank deposits is the property of others and one is duty-bound to return their property to them. However, as they are not known and thus it is not possible to return the interest received to them, one must give the money to charitable causes with the intention that the owners will receive the reward. One cannot use the money to pay for one’s tax liability as such is received by the state and not the actual owner. However, if the bank is state owned one may return the interest earned to the non-Muslim state through the mechanism of one’s tax liability. In this manner the interest earned will be returned to the owner.