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Quoting from another question

Islam mandates zakaat to help poor. Zakaat eliminates beggary to an extent but what about habitual beggars who can otherwise earn a living? How should the lazy and habitual beggars be dealt with according to shariyah?

Some people who live on benefits can 'otherwise earn a living', but do not either due to laziness or fraud, but are not as such begging for income in the strictest sense.

How are people such as these treated Islamically?

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    I thought it was pretty clear - if you're on welfare/benefits because of being lazy, you're committing fraud (I imagine it's a condition of those benefits to really need this help and have tried everything else). And fraud/lying/false witnessing is a sin. – Ansari Aug 1 '12 at 21:57
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This money from Government is referred to as hibbah (gift) in Shariah. However, if it is got in a unlawful manner i.e. by lying or fraud, then it is not allowed in Islam. Usually, the government attaches some binding conditions to be eligible for this money. These conditions of the Government (regardless of who specifies them) must be given importance according to the consensus of the scholars. If the person isn't eligible and he falsifies it, then it is not allowed. If he does so, it is stealing and it is haraam.

Source: Shaykh Falaah ibn 'Ismail al-Mandakar answers a question on Benefit Fraud

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