Abu Dawud

Benefits and Issues:
To fabricate jokes from oneself and to lie for the sake of humor so that people may laugh is absolutely unbecoming of a believer. However, such jest and good-natured humor which is based on truth and remains within moral and Shari'ah boundaries and limits is permissible and allowed.

Explanation:
1:
It is understood that a joke which is false is blameworthy,
but if the statement is true, then occasionally creating an atmosphere of laughter through it is not objectionable.
Indeed, it is established that the Messenger of Allah (sallallahu alayhi wa sallam) at times engaged in humorous conversation,
such as when he once said to an old woman that no elderly woman will enter Paradise,
and likewise, Umar (radi Allahu anhu) compelled the Messenger of Allah (sallallahu alayhi wa sallam) to laugh at a time when he was displeased with his noble wives.

Takhrij:
«صحيح»
[ ابوداود 4990],
[ ترمذي 2315],
[ السنن الكبري للنسائي التفسير /410 ۔ ]
Tirmidhi and Albani have declared it authentic. See: [صحيح الترمذي 1885], [غاية 376], [مشكوة 4838]

Benefits:
➊ Lying to make people laugh is also a cause of destruction:
Many ahadith have been narrated prohibiting lying; see the explanation of hadith (1400) and (1432) in this very book. In the hadith under discussion, a specific form of lying has been declared haram, which is often considered trivial, i.e., lying to make people laugh. It is stated that for the one who does so, there is destruction again and again.

➋ Listening to lies for amusement is also prohibited:
When making false statements to make people laugh is a cause of destruction, then remaining silent over this sin, or even enjoying it upon hearing, is also to be a partner in this sin. Therefore, it is obligatory upon every Muslim that when he hears such a thing from someone, he should forbid him. If he does not desist, and if one cannot stop him by force, then he should leave that gathering.
«فَلَا تَقْعُدْ بَعْدَ الذِّكْرَى مَعَ الْقَوْمِ الظَّالِمِينَ» [6-الأنعام:68]
"After it comes to your mind, do not sit with such wrongdoers."

➌ The situations in which lying is permissible:
Umm Kulthum bint Uqbah bin Abi Mu'ayt radi Allahu anhuma narrates that I heard the Messenger of Allah sallallahu alayhi wa sallam say: "He is not a liar who reconciles between people, says good things, and conveys good things." [مسلم البروالصلة 1/باب27 ]
And she says: "Of what people say (as lies), I did not hear the Messenger of Allah sallallahu alayhi wa sallam grant concession in any of it except for three things: in war, in reconciling between people, and in conversation between a husband and his wife, and a wife and her husband." [مسلم البروالصله /باب27 ]

➍ Comparison between tale-bearing and reconciliation:
One can estimate how dear to Allah the mutual love and heartfelt affection among Muslims is from the fact that He has forbidden even the truth if it takes the form of tale-bearing and causes discord, and has permitted lying if it leads to reconciliation among people or improves relations between husband and wife.

➎ Why is lying permissible in war?:
Allah Ta'ala has said in the Noble Qur'an that We ordained for the Children of Israel that whoever kills a soul not in retaliation for another soul or for spreading corruption in the land, it is as if he has killed all mankind; and whoever saves a life, it is as if he has saved all mankind. [المائده : 32 ]
Now, in war, if all information is truthfully given to the enemy, the result will be nothing but the destruction of the Muslims, and the harm of such truth would be irreparable. Similarly, if war strategies are not used against the enemy, the result could be the defeat of the Muslims.
The scholars, keeping this hadith in view, state that if an oppressor is after someone's life or wealth, and we know where he or his wealth is, and telling the truth would endanger his life or property, then in such a situation, it is obligatory to lie to save his life and wealth.
In all such situations, if it is possible for a person to avoid outright lying and to use ambiguous language (ma'arid), so that the listener understands something else while the speaker intends something different, then this is best. The Messenger of Allah sallallahu alayhi wa sallam used to do this, and this was also the way of other Prophets and Allah's chosen servants. Just as Ibrahim alayhis salam, on three occasions, apparently said something contrary to reality, but in his intention, he meant something entirely correct.
Similarly, during the migration journey, when someone asked Abu Bakr as-Siddiq radi Allahu anhu: "Who is with you?" he replied: «هذا الرجل يهديني السبيل» "This man is guiding me on the way." [ بخاري ، مناقب الانصار/45 ]
Such words are called ma'arid (ambiguous expressions), and through them, a person avoids outright lying:
«ان فى المعاريض لمندوحة عن الكذب» "There is much room for avoiding lies in ma'arid (ambiguous expressions)."
But if it is not possible to manage in a state of war without outright lying, then it is permitted.

Takhrij:
«أخرجه أبوداود، الأدب، باب في التشديد في الكذب، حديث:4990، والترمذي، الزهد، حديث:2315، والنسائي في الكبرٰي:6 /329، حديث: 11126، 6 /509، حديث:11655.»©Explanation:
Lying is, in the light of the Qur’an and Sunnah, already prohibited and a major sin. However, from this hadith it is understood that making people laugh by telling lies and providing them with amusement and entertainment through falsehood is also prohibited. This is because expressions of happiness should be over something good, not over something false.
A person who commits such a crime should be stopped, or at the very least, one should leave the gathering where such lies are being told.