Dear Mufti Sb,
A trader mentioned the price of a commodity for sale as Rs. 100 on cash and Rs. 120 on six monthly installments. What is the differential of Rs. 20 over the period of six months. I am an accounting and finance student and I feel this differential as an interest over the investment of the seller blocked in this transaction for six months (but the calculation of differential is not with a fixed rate just an absolute amount). Need your kind comments on the issue, is this trading of installment and cash price halal haram?
In the aforesaid method, selling an item which is sold at 100.00 on spot payment for 120.00 on deferred payment is permissible in Shari'a and also the additional amount of 20% does not become interest if the transaction is taken place according to the the conditions mentioned here-under.
1. It has to be decided in the first sitting where the contract is executed that the transaction will be deferred and the payments will be on installments.
2. Amount of each installment should be decided.
3. Total number of installments too be decided.
4. Penalty etc. for any late payment on installments should not be a condition.
Allah knows best