بسم الله الرحمن الرحيم

Zakat

Conditions for Zakah

Several conditions must be fulfilled before zakah can be paid. These conditions are necessary as zakah can only be applied on those who are of legal age and who own enough assets. These conditions are categorized into two broad categories, namely performer and asset.

1. Zakah Performer

Muslim
Every Muslim who is of a certain age and owns enough assets is required to pay zakah.

Zakat is obligatory on every sane adult Muslim man and woman.

2. Zakah Asset

Full Ownership
A Muslim will only be required to pay zakah if he or she has full and legal ownership of an asset.

Assets intended for increasing wealth
Zakah is payable only on those assets that are acquired for the purpose of creating or generating wealth. Some examples of this type of assets are livestock or crops that are traded or sold, inventory of goods used for trading, and investments such as gold or securities that have potential for appreciation in value. However, zakah is not payable in the case of fixed assets such as buildings, if they are not subjected to "capital circulation".

Assets that exceed a minimum value
Zakah need only be paid on those assets that exceed a minimum value. This minimum value is calculated based on the market price of 85 grams of gold or 595 grams of pure silver. This minimum value is termed Nisab. The Islamic Fiqh and Research Councils, as well as Jumhur (majority) of Ulama' recommend that gold be used as the basis for the calculation of nisab.

Completion of Haul
Haul is defined as the completion period for a zakah asset. The length of time for haul is one Islamic or Hijri year (1 year Hijri = 354.5 days, 1 year Solar = 365.25 days). Zakah is only payable on assets that have been held for at least this period.

Beneficiaries of Zakah

Zakah can only be distributed to any of the eight eligible beneficiaries (asnaf) that are mentioned in the Qur'an, At Taubah: 60. However, priority should be given to the poor and needy. Where there is no central authority to administer zakah, it can be paid directly to the needy.

“Alms are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bondage and in debt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah, and Allah is full of knowledge and wisdom.” At Taubah : 60.

1. The poor (Faqir/Fuqara)
Those without any means of livelihood and material possessions.

2. The needy (Miskeen)
Those without sufficient means of livelihood to meet their basic necessities. For instance, those who, although may have a job, a house and a car, but whose income is below the minimum requirement.

3. The administrators of zakah (Amil)
Those appointed to manage and administer zakah. This category is sub-divided into the following categories:

a. Group of people who go out to the society and determine those who fall Fuqara and Miskeen categories.

b. Those who collect the Zakah money.

c. The accountant of the Zakah money.

d. The administrator, manager, clerical worker or secretary who puts the files in order.

e. Those who handle Zakah distributions.

Types of Zakah

Zakah Fitr

Zakah Fitr is a one off payment that is made once in every Muslim Hijri calendar year at any time between the first day of the month of Ramadhan and the first day of Shawal. All Muslims are obliged to pay this, regardless of their age, status or wealth. The amount of zakah payable is approximately 3kg of staple food in the relevant country or an amount of money that is equivalent to the price of the food.

Zakah Al-Mal (on wealth)

Zakah al-Mal is an annual payment based on the amount of wealth owned by a Muslim individual or organization. This payment is obligatory upon any Muslim individual or organization that has completed the requirement of Nisab (minimum taxable amount) and Haul (one Muslim Hijri calendar year). The payment is 2.5% out of the total wealth deemed for zakah.

Zakah al-Mal can be subdivided into zakah on :

Zakah on business (Urad Al Tijarah)

In this context, business refers to any form of trading activities that generate income. Zakah is only payable on businesses, which are owned by Muslims. If both a Muslim and a non-Muslim own a business, only the Muslim's share of the business is subject to Zakah.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Intention (niyyah) to do business.
4. Business must be permissible (halal).
5. Haul is completed.
6. Nisab is reached.

The Zakah Calculation Formula

2.5% x [ (Current Assets - Current Liabilities) + Short Term Investment ] x Percentage of Muslim's Ownership

Steps in Calculating Business Zakah

1.

Determine the completed haul for the business operation (closing fiscal year of a business operation). Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the Net Current Asset - this includes cash in hand and in banks, deposits in banks or other sources, trade and non-trade debtors (receivables), stock in trade and other current assets.

3.

Determine Short-Term Investments - this includes Al Mudharabah General Investment Accounts, Negotiable Islamic Debt Certificates (NIDC) and any other Islamic-approved commercial papers.

4.

Determine the circulated business liabilities and payables for the year.

5.

Determine the percentage of ownership the Muslim has in the business.

6.

Determine all the cash or cash equivalents that the owner of the business has which are not directly related to the business operation.

7.

Calculate the zakah base (amount of income that is subject to zakah) by deducting the total liabilities for the year from the total net current assets, and then adding all cash or cash equivalent belonging to the owner of the business and multiplying that with the percentage of the Muslim's ownership.

8.

Compare the zakah base with the nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic year or 2.5775% (0.025775) if it is based on the solar year.


Zakah on Rental Income ('Urud Al Mustaghallat)

Zakah must be paid on rental income. Zakah is only payable on the rental income of properties that are owned by Muslims. If both a Muslim and a non-Muslim own a property, only the Muslim's portion of the rental income is subject to Zakah. Rental income from the properties that were acquired through financing or any other credit facilities not subject to zakah.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Asset was bought for the purpose of renting out or leasing.
4. Renting or leasing must be for permissible purposes.
5. Haul is completed.
6. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Total Rental Revenue - Rental Expenses - Current Liabilities] x Percentage of Muslim Ownership

Steps in Calculating Zakah on Rental Income

1.

Determine the completed Haul for rental or leasing operations (closing fiscal year of a business operation). Haul can be determined either using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the percentage of ownership the Muslim has in the property or properties.

3.

Determine the total rental revenue at the end of the haul.

4.

Determine all the relevant rental expenses incurred during the haul. This includes the maintenance, refurbishment and repairing costs or any other related expenses.

5.

Deduct the relevant rental expenses from the total rental revenue for the year.

6.

Deduct the current liabilities i.e. current creditors, any amount credited (owing) to suppliers, etc.

7.

Add the net amount of (6) with all the cash or cash equivalent of the property owner that is not directly related to the operation of renting or leasing.

8.

Multiply the total amount of (7) with the percentage of Muslim ownership to determine the zakah base.

9.

Compare the zakah base with the nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic year or 2.5775% (0.025775) if it is based on the solar year.

Zakah on Personal Income (Al Dakhl Al Shakshi)

In this context, personal income refers to the salary/wages, commissions, allowances, bonuses and monetary gifts earned by a zakah payer through permissible (halal) activities.

Applied Conditions

1. Muslim.
2. Fully entitled to the income.
3. Income must be derived from permissible (halal) activities.
4. Income must be in the form of cash or cash equivalent.
5. Benefits or perks are excluded in the calculation of zakah.
6. Haul is completed.
7. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Total Salary for the Year + Any Other Income - Allowable Expenses]

Steps in Calculating Zakah on Income

1.

Determine the completed haul for employment. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the total gross salary for the year.

3.

Add any other income for the year - this is inclusive of any commissions earned, allowances, bonuses, wages and monetary gifts.

4.

Deduct all allowable expenses such as:

·                     Expenses for one's self

·                     Expenses for partner

·                     Expenses for children

·                     Allowance for parents

·                     Charitable donations

5.

Deduct all the payments made to repay debts or personal financial loans.

6.

Compare the zakah base (the net amount) with nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

*** In the case of zakah on personal income, if the differences between calculation in using the Islamic and the solar year is immaterial (too small), zakah can be paid by multiplying the zakah base by 2.5% regardless of any type of basis year applied.  

 

Zakah on Savings (Idikhar)

Savings consist of money that is kept in a bank's fixed deposit, current, personal or other type of savings accounts. Cash that is lent or saved elsewhere must also be included for the purpose of calculating zakah. Zakah is calculated on the lowest amount that is available in a person's savings for the year. As a prerequisite that amount must exceed the nisab.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Total Lowest Annual Savings in Bank + Cash Saved or Lent Elsewhere]

Steps in Calculating Zakah on Savings

1.

Determine the completed haul for savings. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the lowest annual balance on Bank accounts for the year.

3.

Add any other savings such as cash saved or lent elsewhere.

4.

Compare the zakah base (the net amount) with the nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

*** In the case of zakah on personal savings, if the differences between calculation in using the Islamic and solar year is immaterial (too small), zakah can be paid by multiplying zakah base by 2.5% regardless of any type of basis year applied.

Zakah on Gold & Silver (Al Zahhab Wal Fiddah)

Zakah is payable upon gold or silver which is bought solely for the purpose of investment. Jewelry and ornaments are usually excluded from zakah unless they are kept unused for one full year.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Asset was bought for the purpose of investment.
4. Haul is completed.
5. Nisab is reached. (Nisab for gold is 85gm while the nisab for silver is 595gm)

The Zakah Calculation Formula

2.5% x [Value of Gold + Value of Silver]

Steps in Calculating Zakah on Gold and Silver

1.

Determine the completed haul. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the weight of each gold and silver product.

3.

Determine the current market value of gold and silver as the products reach the completion of haul.

4.

Compare the weight of gold and silver with the nisab. If the weight exceeds the nisab, multiply it with the current market value of the respective assets to get the zakah base. Multiply the zakah base by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

 

Zakah on Shares (Al' Ashum)

Shares in this context refers to money invested in companies or businesses. The amount of zakah payable will be derived from the current market value of the shares at the completion date of the haul and must exceed nisab. If the shares are sold before the completion of the haul, then no zakah is due. However, in the case of more than one portfolio of shares, which were purchased at different times, the determination of haul must be calculated separately.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Market Value of Shares]

Steps in Calculating Zakah on Shares

1.

Determine the completed haul for shares. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the current market value of shares on the completion of haul.

3.

Deduct the amount borrowed (if any) for the purchase of the shares.

4.

Compare the current market value of shares with nisab (85gm of gold). If the price exceeds the nisab, multiply the zakah base by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

 

Zakah on Livestock

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.
5. Nisab on Livestock is fixed on each category of animals.

The Zakah Basis

No. of Animal Owned

Amount for Zakah

0-29
30-39
40-59
60-69
70

0
1 calf
1 cow
2 calves
1 cow and 1 calf

Goat

0-39
40-79
80-119

0
1 goat
2 goats

Camel

0-5
5-9
10-14
15-19

 

Zakah on Crops (Al Mahasil)

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.
5. Only wheat, barley, raisins, paddy and dates are included; not fruits, vegetables, onions, etc.

The Zakah Basis

The rates are five percent (5%) on irrigated and ten percent (10%) on rain, river or spring-watered crops. Both calculations take place upon harvesting.

What Is Sadaqah?

Sadaqah is a voluntary act of giving alms 'fi sabillilah' (for the cause of Allah), by Muslims who want to contribute more than their obligatory zakah payment. Sadaqah may be given to mark or bring blessings to occasions such as weddings, anniversaries, personal success or even instances of sadness or bereavement. In short, sadaqah can be given during any period of happiness or sadness or as a sign of gratitude to Allah Subhanu wa Ta'ala.

In a Hadeeth Narrated Ibn Masud:
I heard the Prophet (S.A.W.) saying, "There is no envy except in two: a person whom Allah has given wealth and he spends it in the right way, and a person whom Allah has given wisdom (i.e. religious knowledge) and he gives his decisions accordingly and teaches it to others."

In another Hadeeth:
The Prophet (S.A.W.) said: 'Charity is a necessity for every Muslim'. He was then asked: 'What if a person has nothing?' The Prophet replied: 'He should work with his own hands for his benefit and then give something out of such earnings in charity.' The Companions asked: 'What if he is not able to work?' The Prophet said: 'He should help poor and needy persons'. The Companions further asked 'What if he cannot do even that?' The Prophet said 'He should urge others to do good'. The Companions said 'What if he lacks that also?' The Prophet said 'He should check himself from doing evil. That is also charity'.

To Whom Zakat cannot be Given

  1. Zakat cannot be given to a person who owns atleast 7 1/2 tolas of gold or 52 1/2 tolas of silver or equivalent wealth in cash, kind or in trade goods. If Zakat money is given to such a person, then the obligation will not be discharged. For such a person to receive and accept Zakat is forbidden, and to use it is haraam. If a person owns household goods over and above that which are necessary for his normal use, such as carpets, utensils or other goods which are owned and kept in possession but are hardly in frequent use, then such goods do not come under essentials, but in accumulated wealth, and Zakat cannot be given to the person possessing them.

  2. To non-Muslims.

  3. To some relatives: Zakat cannot be given to one's mother, father, paternal and maternal grandparents, great grand-parents, etc. Likewise, Zakat cannot be given to one's offspring-sons, daughters, grand-children, great grand-children, etc. Zakat cannot be given by husband to wife, nor by wife to husband. Except for these, Zakat can be given to other relatives such as brothers, sisters, uncles, aunts, cousins, nieces, nephews, etc.

  4. To children: The position of a minor child is linked with his or her father. If the father is wealthy, then the child will also be considered as rich and Zakat cannot be given to him If the father is poor enough to receive Zakat, but the mother is rich, then Zakat could be given to the child because the child's financial position is linked with that of the father, not the mother.

  5. To Sayyeds : Sayyeds are the descendants of the Prophet Muhammad (Pbuh) through his daughter Fatima and the descendants of his uncle Abbas and his cousins Aqeel, Haris, etc., Zakat as well as Sadaqah and Fitra cannot be given to them.

  6. Zakat cannot be given to a person in payment of services rendered by him or in payment of wages to a teacher, caretaker, etc. It can, however, be given to such a person as a gift, if desired.

  7. Zakat cannot be given to domestic or other servants as wages.

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