What is Impermissible income?
Nohalal daromad
In short
The share of a company's revenue from prohibited sources (mostly interest). The AAOIFI limit is below 5% of total revenue.
Also known as: non-permissible income
Impermissible income is the part of a company's total revenue that comes from prohibited sources. In companies with a permissible core business it usually comes from two places: interest income (from deposits and bonds) and small side activities (for example, alcohol sales in a retail chain or a bar in a hotel).
- Impermissible income share = Impermissible income ÷ Total revenue
In the AAOIFI standard this share must be below 5% of total revenue.
A small share and purification
The 5% limit recognises that a company doesn't have to be completely "clean" — very few large modern businesses are. But even the impermissible part below the limit is not considered the investor's to keep, so the matching portion of dividends is given to charity through purification.
Difficulties
Company reports don't always break revenue down by source in detail. Interest income usually has its own line, but money from alcohol sales, for example, may be buried in total sales. In such cases screening relies on estimates or marks the result as doubtful. Our approach is on the methodology page.
For information only, not a fatwa.
The impermissible part is small but not zero: 300 ÷ 20,000 = 1.5%. Below the 5% limit — it passes, but this share is purified from dividends.
Example
An illustrative retail company: total annual revenue $8B.
- Interest income: $120M
- Alcohol sales in some stores: $160M
- Total impermissible income: $280M
Share: $280M ÷ $8,000M = 3.5% — below the AAOIFI standard's 5%.
Purification: you own 100 shares and the dividend is $2 → $200. The portion to purify: $200 × 3.5% = $7 to charity.
Mistakes and tips
Even when the impermissible share is below 5%, don't forget to purify the matching portion.
Look for interest income under "interest income" or "other income" lines in the financial report.
The share can change every year — use the latest report's figure when purifying.
Halal finance terms are explained for general information — not a fatwa. Not investment advice either.
Frequently asked questions
- What percentage of a company's revenue can be impermissible?
- Under the AAOIFI standard, below 5% of total revenue. Even the portion under that limit has to be purified.
- Does interest income count as impermissible income?
- Yes, in most methodologies interest income is the main component of impermissible income.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Halal investing basicsHow a stock passes a Shariah screen: business activity, the three AAOIFI ratios with numbers, doubtful cases and what is off-limits.Open lesson · 12 min
- Fundamental analysis basicsThe three financial statements, reading the income statement line by line, margins, EPS, share count, ROE/ROIC and a business-quality checklist.Open lesson · 12 min
- Financial health: balance sheet, debt and FCFReading the balance sheet, liquidity and leverage, the cash flow statement, FCF and cash conversion, dilution, red flags and the 30% halal screening ratios.Open lesson · 12 min
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- AAOIFI Shariah Standard No. 21 in plain languageThe most widely used standard for halal stock screening: the two-step test, the three ratios and how it differs from other methods.