Q. What is the ruling on saying: ‘So-and-so is a Shaheed (martyr)’?
A. The answer to that is that testifying that someone is a Shaheed is in two forms:
1. That it is tied to a general description, such as the saying: Every person who is killed in Allah’s Cause is a martyr, or: whoever is killed defending his property is a martyr, or: whoever died from plague is a martyr, and the like. Then this is permissible, as reported in the evidences (from the Sunnah). In these cases one is testifying to something which has been informed about by Allah’s Messenger (صلى الله عليه وسلم) by our saying: ‘it is permissible’, we mean that it is not forbidden, although testifying to it is an obligation, since we are obliged to believe whatever the Messenger of Allah (صلى الله عليه وسلم) tells us.
2. That the testimony is tied to a particular person. Such as your saying to a particular individual that he is a martyr; this is not permissible except for a person about whom the Prophet (صلى الله عليه وسلم) has testified that he is a martyr or about whom the Muslim community is agreed that he is a martyr. Al-Bukhari, may Allah have mercy on him, has explained this in his words: Chapter: It Should not be Said: So-and-so, the martyr. Ibn Hajr said in Al-Fath in volume 6, page 90: That is, in a positive manner, unless it is by way of revelation. And it is if he was referring to the Hadith of ‘Umar, may Allah be pleased with him, in which it is stated that he delivered a sermon saying: You say in your battles that so-and-so is a martyr and so-and-so died as a martyr and it might be that he overburdened his riding beast (i.e. and it fell on him and killed him). So do not say that; instead, say as the Messenger of Allah (صلى الله عليه وسلم) said:
“Whoever died or was killed in Allah’s Cause, he is a martyr.”
And this is a Hasan Hadith reported by Ahmad and Sa’d bin Mansur and others, by way of Muhammad bin Sireen, on the authority of Abul-‘Ajfa’, from Umar. (end of quote)
And (it is not permissible) because testifying to something cannot be done without knowledge of it, and a man being a martyr is conditional upon him fighting, so that the Word of Allah is supreme. But this is a hidden intention, and there is no way to know it, which is why the Prophet (صلى الله عليه وسلم) said indicating that:
“The like of the Mujahid in Allah’s Cause and Allah knows better who is a Mujahid in Allah’s Cause.” 
And he (صلى الله عليه وسلم) said:
“By Him in Whose Hand is my soul, no one will be wounded in Allah’s Cause and Allah knows better who was wounded in His Cause except that on the Day of Resurrection he will come forth with his wound having the color of blood, but the fragrance of musk.” 
Al-Bukhari reported them both from the Hadith of Abu Hurairah, may Allah be pleased with him. But whoever appeared to be righteous, we hope that he is so, yet we do not testify for him to that effect, nor do we hold a bad opinion of him. Hope is a level between the two levels (i.e. stating categorically that someone is a martyr and stating categorically that he is not). However, in the life of the world, we treat him according to the rulings of the martyrs, so if he was killed during Jihad in Allah’s Cause, he will buried bloodied in his clothes, and without (funeral) prayer being conducted over him, and if he was one of the other martyrs (who died of plague etc.), he will be washed and placed in a shroud and prayer will be conducted over him.
And (it is not permissible) because, if we testified for someone that he is a martyr, that testimony would necessitate that we testify that he is in Paradise, and that contradicts the practice of Ahlus-Sunnah, for they do not testify that anyone is in Paradise except one for whom the Prophet (صلى الله عليه وسلم) has described, or one whom he has mentioned by name. Others among them opined that it is permissible to testify to that for one whom the (Muslim) community unanimously agree was praiseworthy. This was the opinion of Shaikhul-Islam Ibn Taimiyyah, may Allah have mercy upon him.
From this it is clear, that it is not permissible for us to testify that a particular person is a martyr, unless there is evidence or consensus to that effect. But if anyone’s outward appearance suggests that he is righteous, then we hope that he is so, as mentioned previously, and that is sufficient praise for him. And knowledge of him is with Allah, the Most Glorified, the Most High.
 Reported by Al-Bukhari in the Book of Jihad and Military Expeditions, in the Chapter: The Best of People is a Believer Who Struggles With His Person and His Wealth in Allah’s Cause (2787).
 Reported by Al-Bukhari in the Book of Jihad and Military Expeditions, in the Chapter: Whoever Goes out in the Cause of Allah, the Almighty, the All-Powerful (2803).
Source: Fatawa Arkan-ul-Islam, Islamic Verdicts on the Pillars of Islam, Volume 1 (Creed & Prayer), by the Honourable Shaikh Muhammad bin Salih Al-‘Uthaimeen, Darussalam, pp.293-296.