Short answer
Many Hanafi muftis advise not starting the greeting, since it is tied to a celebration Muslims do not join, but replying politely with a dua such as "May Allah make it a good year for you" is fine. Some scholars treat it as a neutral calendar greeting and allow it. It is lighter than congratulating someone on a religious festival like Christmas.
The safer Hanafi position is to avoid initiating New Year greetings and to answer with a dua or a kind word. Because 1 January is not a festival of worship, a polite reply is not sinful, unlike congratulating someone on another faith's religious festival.
The four schools agree on this.
Explanation
There are two questions here. Congratulating someone on a religious festival of another faith, such as Christmas or Easter, means congratulating them on a belief Islam rejects, and the scholars are strict about it. See can Muslims say Merry Christmas? The Gregorian New Year is different: it marks the turn of a calendar, not an act of worship. That is why many scholars are lighter about it, while the cautious Hanafi fatwa still prefers not to start the greeting because of the celebrations attached to it.
Islam asks you to answer a greeting with one better or at least equal. A colleague who says "Happy New Year" is being friendly, and a cold silence helps no one. Good ways to reply:
- "Thank you, wishing you a good year too."
- "May Allah make it a year of health and good for you."
- "All the best to you and your family."
These are duas and kind words that are good on any day. You do not need to repeat the exact phrase or join a celebration to be courteous.
Some respected contemporary scholars allow saying "Happy New Year" outright, seeing it as no more than wishing someone well for the coming twelve months. If you follow that view, keep it to the greeting and stay away from the parties. On the celebrations themselves, see is celebrating New Year's haram?
The evidence
Quran, Surah An-Nisaa 4:86
وَإِذَا حُيِّيتُم بِتَحِيَّةٍۢ فَحَيُّوا۟ بِأَحْسَنَ مِنْهَآ أَوْ رُدُّوهَآ ۗ إِنَّ ٱللَّهَ كَانَ عَلَىٰ كُلِّ شَىْءٍ حَسِيبًا ﴿٨٦﴾
And when you are greeted with a greeting, greet [in return] with one better than it or [at least] return it [in a like manner]. Indeed, Allah is ever, over all things, an Accountant.
A friendly greeting should be answered kindly.
Quran, Surah Al-Mumtahana 60:8
لَّا يَنْهَىٰكُمُ ٱللَّهُ عَنِ ٱلَّذِينَ لَمْ يُقَٰتِلُوكُمْ فِى ٱلدِّينِ وَلَمْ يُخْرِجُوكُم مِّن دِيَٰرِكُمْ أَن تَبَرُّوهُمْ وَتُقْسِطُوٓا۟ إِلَيْهِمْ ۚ إِنَّ ٱللَّهَ يُحِبُّ ٱلْمُقْسِطِينَ ﴿٨﴾
Allah does not forbid you from those who do not fight you because of religion and do not expel you from your homes - from being righteous toward them and acting justly toward them. Indeed, Allah loves those who act justly.
Courtesy to peaceful non-Muslim colleagues and neighbours is encouraged.
Sahih al-Bukhari 6018
Sahih... من كان يؤمن بالله واليوم الآخر فليقل خيرا أو ليصمت ...
"Whoever believes in Allah and the Last Day, let him speak good or remain silent."
A kind dua in reply is good speech without endorsing a celebration.
Where the ruling is recorded
- al-Fatawa al-Hindiyya, Kitab al-Siyar, the chapter on the rulings of apostates, words of kufr about the festivals of non-Muslims. Distinguishes honouring another community's festival from ordinary courtesy.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.