Zakat in the Qur’an:
And establish prayer and give zakah and bow with those who bow [in worship and obedience].
(Qur’an, Surah Baqarah 2: 43)
And [recall] when We took the covenant from the Children of Israel, [enjoining upon them], "Do not worship except Allah ; and to parents do good and to relatives, orphans, and the needy. And speak to people good [words] and establish prayer and give zakah." Then you turned away, except a few of you, and you were refusing.
(Qur’an, Surah Baqarah 2: 283)
What is Zakat?
Zakat, which means ‘the increase’, is a type of charity in Islam. It’s one of the five pillars and it must be paid once a lunar year, e.g. every Ramadhan by eligible persons.
Who must pay Zakat?
If you’re over the age of puberty, and if you have savings of more than the minimum threshold (nisab), then you must pay Zakat.
What is the minimum threshold (Nisab)?
Nisab is 85 grams of gold (check price of 1 gram and then multiply by 85) or 595 grams of silver. Price of silver is at least 10 times less than gold. Nisab on 10th Aug 2012 | 22nd Ramadhan 1433:
85 grams of GOLD: £2826 GBP or $4428 USD
595 grams of SILVER: £345 GBP or $535 USDM
You may use gold or silver as the nisab, but it’s best to use the silver nisab to avoid paying too little.
What kind of savings is zakat applicable on?
Livestock, e.g. camels, cows, sheep, poultry etc
Crops and fruits, e.g. rice, wheat, bananas, apples etc.
Currency, e.g. cash, gold/silver, diamond, other precious minerals, money loaned etc
Trading goods and merchandise, e.g. wholesale value of merchandise, cash on hand and in deposit etc.
Zakat is obliged on these properties if they reach the Nisab for the duration of one lunar year except for crops and fruits whose Zakat is due the moment they are harvested.
Note: Zakat is due only upon lawfully earned money.
What kind of property zakat is NOT applied?
Items of personal use such as clothing, food, shelter or house/s one lives in, car/s, and all other property that is not used for business, zakat does not apply.
Who is Zakat paid to?
Zakah expenditures are only for the poor and for the needy and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler - an obligation [imposed] by Allah . And Allah is Knowing and Wise.(Qur’an, Surah At-Tawba 9:60)
Fuqaraa (The Poor): Those who own property in excess of basic necessities but below the value of Nisab.
Masakeen(The Destitute): Persons of extreme poverty who possess no wealth whatsoever.
Aamileen (The Zakat collectors): Those persons who are appointed by an Islamic Authority to collect Zakat. It is not necessary that this be a needy person.
Muallafatul Quloob (To Win the Hearts): Those who newly converted to Islam, who by giving the zakat might help solidify their hearts and bring them closer to Islam.
Ar-Riqaab (The Captives): Slaves whose masters have agreed to set them free on a payment of a fixed amount. Zakat may be used to purchase their freedom.
Al Ghaarimeen (The indebted): A person whose debts exceeds his assets and his net assets is below the Nisab limit. It is conditional that the debts were not created for any un-Islamic or sinful purpose.
Fi Sabeelillah (In the Way of Allah): Those who are away from home in the path of Allah. Those in Jihaad, those seeking knowledge or a stranded Haji may be assist with Zakat if they are in need.
Ibnus-Sabeel (A traveller): Who, whilst wealthy at his residence, is stranded and in need of financial assistance.
How do I calculate Zakat?
Add together all your wealth (in your local currency), including bank savings, business investments, gold/ silver ownership that you owned over a period of one lunar year, or since last Ramadhan.
Then deduct all thewealth that are for personal/ family use, and then deduct the nisab. You pay 2.5% of whatever that’s left over. If the figure is below zero then you don’t pay any zakat this year.
You own a private car, a family home, and have £10,000 investment in a grocery business. You also have £15,000 of savings in your personal bank, £5,000 worth of gold and other precious metals.
Now here’s the calculation:
First of all, you don’t add your personal assets as zakat is not paid on these. With regards to the £10,000 of business investment in the grocery store, you must check if your business partner in the grocery store is paying zakat each year.
Add Zakatable wealth: £15,000 + £5,000 = £20,000
Deduct Nisab: £20,000 - £345 = £19,655
2.5% of £19,655 is £491.38 is the Zakat amount.
How is Zakat paid?
Zakat is paid to the Islamic Authority, and it is then distributed to the Muslims all over the world. The Prophet (pbuh) sent Mu'az (as the Governor) to Yemen and said to him: "Inform them that Allah obliged Sadaqah (Zakat) upon their wealth that is taken from their rich and given to their poor." In the absence of an Islamic authority zakat can be paid to any of the eight categories directly.
How is Zakat on business calculated?
Zakat for a business is calculated on the Zakat due date according to the following formula:
Appraised Merchandise Wholesale Value (PLUS)
Cash on Hand and in Deposit (PLUS)
Good Debt Owed to Business (MINUS)
Eligible Debt (TIMES by)
2.5 percent (EQUALS=)
Zakat Payment. (AMWV+C+GD) -(ED) x 2.5 percent = Zakat Due
Example for Business people:
Scenario: You’re a grocery shop owner. Your total wholesale value of goods is £50,000. You have £10,000 debt that you borrowed to buy some goods. You have £5,000 money in your business account. 50% of the business is owned by someone else. You have a personal zakatable wealth of £20,000. How much zakat is due?
Assuming nisab is: £345
Total Zakat on total Assets: £50,000 + £20,000 + £5,000 – (minus) £10,000 = £65,000
£65,000 - £345 = £64655
2.5% of £64,655 = £1616.38 is the ZAKAT AMOUNT.
The grocer pays 100% of the zakat from the business assets whether he owns 50% or 10% of the business.
General Q & A related to Zakat
What is a lunar year? A lunar year is made of 12 cycles of lunar phase. It’s about 354 days long, as opposed to 365 days, which is a solar year.
Can I pay Zakat at other times of the year? Yes, but remember, it’s once per lunar year not solar year!
Can I pay Zakat even if I am not eligible? No, however, you may pay this amount as sadaqah, but you are not allowed to call this money zakat.
Can zakat be given to relatives? Yes, as long as they fall into one of the eight categories mentioned earlier.
SUMMARY (4 RULES TO REMEMBER ABOUT ZAKAT)
Zakat is paid on surplus wealth and is obligatory
A 2.5% is paid on all types of savings and investment if the amount is above the nisab
Zakat is paid to the poor Muslims (+ 7 other categories)
Zakat must be paid every year
Alhamdulillahirabbil alamin. Allah knows best.
Some of the Sources:
Zakat and Business
Zakat FAQ 2
Zakat In the Quran
Who is Entitled to recieve Zakat
Zakat Article Obligation of Zakat
Islamic Relief Calculator
Muslim Aid Calculator
Islamic Aid Calculator