What is Zakat?
The term Zakat means alms, but the actual meaning of Zakat is purification and growth, thus encouraging growth and equality amongst the population and community whilst sharing one's wealth with his fellow beings. It is an obligation upon all sane, adult Muslims whose total annual wealth meets or exceeds the nisab value, and it forms one of the central Five Pillars of Islam.
By giving a fixed percentage of your overall wealth each year to support those in need, you will be fulfilling the wishes of Allah (SWT) and completing a key component of your faith.
Giving Zakat on an annual basis is seen as an important religious duty in Islam. It becomes obligatory upon an individual when a certain amount of maintained money or wealth is reached and exceeded. If the individual’s amount of profitable wealth falls below the nisab value, then that individual is not liable to pay Zakat in that given lunar year*. If the amount of personal, profitable wealth meets or exceeds the nisab value, then the individual must pay 2.5% of the total amount above the nisab value as Zakat in that lunar year.
* Based on the lunar cycle, an Islamic calendar year is 355 days on average.
‘As-Sadaqat (Zakat) are only for the Fuqara' (poor), and Al-Masakin (the needy) and those employed to collect (Zakat funds); and for to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allah's Cause (i.e. for Mujahidun - those fighting in the holy wars), and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allah. And Allah is All-Knowing, All-Wise.’
- Holy Qur’an (9:60)
WHO IS ELIGIBLE TO PAY ZAKAT?
Zakat rules define those eligible to pay as being:
- Of Muslim faith
- Sane and in good health
- Free and not in slavery
- Past the age of puberty
- With wealth greater than the nisab value
- With a positive goods or cash flow
To summarise, those eligible to give Zakat are adult Muslims, working or earning more than the nisab value and able to meet their and their family’s daily needs without struggling.
Who is Eligible to Receive Zakat Donations?
On the other hand, Zakat must be distributed amongst eight set groups of people as defined in the Holy Qur’an:
- The Poor (Fakir)
- The Needy (Miskin)
- An Islamic Revert in Need (Muallaf)
- The Collector of Zakat (Amil)
- Slaves (Riqab)
- A Stranded Traveller in Need (Ibnus Sabil)
- A Debtor (Gharmin)
- Those Practising, But in Need and Away from Home (Fisabillillah)
What is the Nisab Value?
The nisab value is the term given to the threshold at which Muslims are eligible to pay Zakat. Two differing values are used to calculate the nisab threshold; these are the current monetary worth of 87.48 grams of gold and 612.36 grams of silver. When working out the amount of Zakat you need to pay, the value taken is the precious metal cost on the date of the calculation, which applies to the total wealth held for a full Islamic lunar year.
Another Islamic term you may find referenced is ‘Hawl’ – this is the term used to describe the Islamic lunar year. Zakat payments must be made once every Hawl from the date your total wealth exceeds the nisab value and has remained above the threshold for an entire lunar year.
If your wealth changes, you will need to adjust your Zakat accordingly to ensure you are paying the correct amount. Similarly, if your wealth drops below the nisab value, you will no longer be eligible to pay Zakat.
When Can Zakat Be Paid?
Although you can give Zakat at any time of year or given in monthly instalments (twelve equal payments), many Muslims choose to pay their Zakat during the Holy month of Ramadan. This is because the rewards and blessings of giving in this month are far greater than at any other time of the year.
How to Calculate Your Zakat
Your personal finances and assets contribute to your total wealth, however, essential items that are necessary for comfortable day-to-day living are exempt from the Zakat total. This includes the home you live in and the primary car you drive, but it’s worth noting that Zakat is due on any additional vehicles and second properties you may own.
The following items - your liabilities - should be exempt from your Zakat calculation:
- Personal items such as clothing and appliances
- Any money you owe to others, including mortgages, personal loans and card debts
- Bills and the rent or mortgage payment for the month in which your Zakat payment is due
- Any short-term business loans or overdrafts, if applicable
- Business expenditures including salaries, bills and building rent
When calculating the total amount of Zakat you need to pay, you will also need to consider the following assets:
- Cash in savings, at home or in bank accounts
- Money raised and set aside for property, weddings, hajj etc
- The total value of owned gold and silver
- The full value of any held shares at market value
- If applicable, the complete value of all business stock you own
- Rental income from any properties you own
- Any lent money in debt to you that you expect to see returned
With all this information in mind, you can then work out your total wealth using the following calculation:
Personal and business assets – short-term liability = your total wealth
If this figure is above the nisab value, you are eligible to pay Zakat.
Zakat 2019
Whilst Zakat is an obligatory religious duty, it is also a meaningful reminder that everything we have been given in this life is worldly, material goods and is not ours. Anything that is given to us belongs to Allah (SWT) and it is seen as our duty to share it amongst His creation.
To calculate the exact amount of Zakat you need to pay, you can use our handy Zakat calculator.
