Is it permissible to waive outstanding debts as Zakat on money?

This method of paying Zakat is not permissible because intention (niyyah) is required when disbursing the money, and the intention for Zakat was not present when it was disbursed. Zakat is a matter of taking and giving, as stated in His Almighty's words: "Take, [O, Muhammad], from their wealth a charity by which you purify them and cause them increase." (Quran 9:103). One can waive the remaining debt on the debtor as charity, but this does not fulfill the obligation of the prescribed Zakat.