Zakat

 

Zakat is the obligatory form of charity, if one’s possessions exceed a certain threshold known as Nisab, in one full Lunar year. Zakat is not a tax burden, but it serves as a socio financial system by redistributing the wealth among the poor and the needy. It is one of the five pillars of Islam and it leads to stronger social communion and solidarity among members of the society. It helps in the eradication of poverty and the enhancement of morality and love.

 

Who should pay Zakat?

Zakat is obligatory on the Muslim who has reached puberty, who is sane, who is free and who owns minimum assigned Nisab.

 

What is Nisab?

The Qur’an does not provide the definition of Zakatable wealth nor does it provide the required percentages in Zakat. But Qur’an mentions a few kinds of Zakatable possessions (assets), such as gold and silver, crops and fruits, earnings of trade and other business enterprises and what is drawn beneath the earth, i.e., natural resources. Most Muslims pay 2.5 % of their income as Zakat, as specified in the Books of Bukhari.

1.      The Nisab is specified as 85 grams of pure gold or 595 grams of pure silver or their equivalent in cash and funds of all types, such as stocks, properties of all kinds, tradable assets and all that is mentioned in the following chart (Zakatable wealth), provided that the equivalent of the Nisab in such assets is owned for one Lunar year.

2.      Zakat is not mandatory if the total did not reach the Nisab amount. A person’s house and personal transportation are exempted from Zakat.

3.      It is acceptable for a Muslim to specify a single date on which topay Zakat and to adhere to such date every year whether one full Lunar year has passed on every portion of his/her wealth or not assuming that his/her wealth has the Nisab on this date.

4.      Childeren, minors, orphans, widows and widowers must pay Zakat on their wealth if the conditions mentioned above are met. This is because Zakat is tied to wealth and not individuals or status. (There is difference of opinion regarding this among the scholars).

5.      If a person dies before he/she has paid Zakat and it is due, his/her heirs must pay it from his/her estate, after settling debts before paying bequests.

 

Who is entitled to Zakat?

Zakat must be paid to eight categories of individuals only [Qur’an 9:60].

1.      Al-Masakin – The extreme poor muslim, classified as someone who doesn’t have sufficient resources to meet half of his/her basic needs.

2.      Fuqara’ – The needy, classified as someone who doesn’t have sufficient resources to meet all of his/her basic needs.

3.      Aamileen – Collectors and distributers of Zakat.

4.      Muallafatul Quloob – Those whose hearts to be won, i.e., to support those who have recently embraced Islam. Eg: to compensate them for difficulties they face as a result of their embracing Islam.

5.      Ar-Riqaab – In order to free a slave/captive.

6.      Al Ghaarimeen – To support debtors who genuinely cannot pay off their debts.

7.      Fi Sabeelillah – In the cause of Allah, which is everything intended to champion God’s word.

8.      Ibnus-Sabeel – To support the traveller stranded far from home.

 

As a general rule, the recipient must be a Muslim living individual who does not possess wealth equal to or an excess of Nisab.

 

Who is not entitled to Zakat?

The following persons are not eligible to receive Zakat

1.      A non-muslim (most cases)

2.      Descendants of the family of Prophet

3.      On behalf of a deceased person for shrouding, burial or payment of debts

4.      To an organisation for construction or maintenance of Mosque, School and similar projects

5.      To those whom the person paying Zakat is obligated to support, for instance a wife, children, parents and grandparents.

However, a wife may pay Zakat to her husband if he falls within one of the eight categories.

 

Zakatable Wealth

1.      Gold, silver and precious stones for the sake of trade or investment: Zakat is payable on its market value

2.      Cash in hand.

3.      Balance of current accounts.

4.      Balance of saving and other deposit accounts: Zakat is payable on balance and earned profits.

5.      Shares owned for trading (buying and selling): Calculated at their market value.

6.      Savings for marriage, pilgrimage or to buy a car, house etc.: Zakat is payable on such funds if not used for the intended purpose.

7.      Properties intended for sale (whether land or building under construction, or a building ready for sale) held by a person in the business of buying and selling properties: Zakat is calculated on the market value of such properties,, provided that one full Lunar year has passed with the properties under the ownership of the individual.

8.      Goods available for sale: Zakat is payable on the market value as of the Zakat date.

9.      Debts owed to you by others, which are not doubtful: Zakat is payable on the loaned amount as if it were cash in hand. However, if the borrower is in financial difficulty, or if he/she defaults or repudiates the debt, and you do not have any evidence to prove the debt, no Zakat is payable on the loaned amount. If the loan is eventually settled and at least one full Lunar year has passed on ths wealth Zakat must be paid for only one year regardless of the number of years already passed on the loan.

 

Non Zakatable Wealth

1.      Gold and silver for a women’s personal use: No Zakat is payable if the jewellery is used within a woman’s social status. But Zakat must be paid for that quantity which is beyond that. If a woman wants to pay Zakat voluntarily on all of her gold and silver jewellery, she is allowed to do so. No Zakat is payable on jewellery worn by a woman not made from gold and silver, like diamonds and other precious stones.

2.      Shares held for capital gain or dividend (long term investment): Zakat is payable as advised by the respective company on each of the company’s shares or calculated on the net working capital (current assets less current liabilities). Any dividends received are Zakatable.

3.      Employee’s rights in pension funds and social insurance, which have not been paid out: if the employee receives such benefits, he/she must pay Zakat once one full Lunar year has passed from the date of receipt.

4.      Residential property and furniture for personal use.

5.      Properties intended for rent: But Zakat is payable on the rental income.

6.      Properties held by an individual who is not in the business of buying and selling, but who may sell out of need or at favourable market condition: Zakat ispayable at the time of sale if one full Lunar year has already passed, even if the individual has owned the property for more than one year.

7.      Plant, equipment and tools used for manufacturing.

 

Method of calculating Zakat

Zakat = (Total Zakatable wealth – Total debts due within the coming year only) X 2.5%