By: Sheik Amir, Chairman Ulema Board
One of the most important principles of Islam is that all things belong to Allah SWT, and that wealth is therefore held by human beings in trust.
The obligatory nature of Zakat is firmly established in the Qur’an, the Sunnah, and the consensus of the companions and the Muslim scholars.
The word Zakat means both ‘purification’ and ‘growth’. Our possessions are purified by setting aside a proportion for those in need, and, like the pruning of plants, this trimming down of the surplus causes new growth.
Zakat is an obligatory act ordained by Allah SWT to be performed by every Muslim. It is an important pillar among the five pillars of Islam. Zakat is a portion of the wealth and property that Muslims must pay annually, to help the poor of their community. One of the main purposes of Zakat is to keep those who are wealthy clean, monetarily, from sin, and help the poor and needy in our community. This is the social welfare system of Islam to address the needs of our less fortunate people.Zakat – Muslim Directory
Nisab of Zakat:
Nisab is the term used for the threshold at which Zakat becomes obligatory. Zakat is obligatory when a certain amount of money – Nisab – is reached or exceeded. Zakat is not obligatory if the amount owned is less than this Nisab. The Nisab of gold is 20 Mithqal, (7.5 Tolas), this is approximately 87.48 grams of pure gold. The Nisab of silver is 200 Dirhams, (52,5 Tolas), which is approximately 612 grams of pure silver. The Nisab of other kinds of money and currency is to be scaled to that of gold, e.g. 87.48 grams of pure gold, or to that of silver, e.g. 612 grams of pure silver.
The rate of Zakat which is fixed by Rasulullah (pbuh) is 2.5, two and a half percent of one’s capital % (1/40).
For people to become obligated to pay Zakat they must meet the following criteria:
- A Muslim (male and female): Zakat is a religious obligation upon Muslims, like the five daily prayers.
- Sane: The person on whom Zakat becomes obligatory must be of sound mind according to Imam Abu Hanifa. Imam Malik holds that an insane person is still liable for Zakat.
- In complete ownership and control of their wealth: The person must own and be in possession of the wealth, and also be free to spend or dispose of the wealth in any manner they like.
- In possession of wealth above the Nisab threshold: The person should possess wealth above a defined amount required to satisfy the essential needs of themselves and their dependents (Nisab).
- Free from debt: Someone in debt may deduct his debts from his assets, if what remains is still above the Nisab threshold, Zakat is due, otherwise not.
- In possession of the wealth for one complete lunar (Hijrah) year: If one owns wealth for a lunar year, Zakat will become obligatory, provided the total amount of wealth exceeds the Nisab for the entire duration of the year.
What part of Wealth will require Zakat?
- Gold and Silver: Any gold or silver you possess will attract Zakat, including jewellery according to Hanafi school, because these two metals have intrinsic monetary value.
- Cash or its Equivalent: Cash at home, in bank accounts, savings, money lent to others, savings certificates, bonds, shares, investment certificates and so on, are all taken into account when calculating Zakat.
- Stock Purchased for Trade: Any goods you have bought with the intention of selling are included in your Zakat wealth.
- I Gave a Lot of Money to Charity Over the Year, Doesn’t that Count as Zakat? For a donation to qualify as Zakat, there must be a clear intention present, either when you separate the Zakat money from the rest of your wealth, or when you make the Zakat payment.
Can Zakat be paid in Advance?
Zakat can be paid in advance before the year has ended, but you should make sure you have wealth equal to or above the Nisab.
How is Zakat calculated on shares?
Shares are of two types: those purchased by a speculator who trades in shares, and those bought for investment.
If you are a speculator and have bought shares specifically for the purpose of selling them and making a profit, then the entire market value of the shares is subject to Zakat since it is considered as stock in trade.
If, on the other hand, you have bought the shares as an investment and to receive dividends, then you first have to calculate the percentage of assets that would be subject to Zakat that the company has, and pay Zakat on that percentage of the value of your shares. To do this you would have to look at the yearly accounts of the company, and work out what percentage of its assets are stock, raw materials, cash, gold or other items attracting Zakat.
Buildings, machinery, vehicles and so on that are essential for the business are not subject to Zakat.
I Saved Some Money for Hajj, do I Pay Zakat on it?
Yes. Zakat is payable on money saved for Hajj, provided it is kept for one lunar year, and is at or above the Nisab threshold.
Do I Pay Zakat on My Pension Fund?
There are two ways in which a pension can be funded:
- Payments are deducted from a salary before it comes into the possession of the contributor
- The contributor makes payments from money that has already come into his possession
If the payments are deducted from the salary at source so that the money never comes into the possession of the contributor, no Zakat is due on the payments, nor is it due on the amount that accumulates in the pension or provident fund.
Zakat will only become payable when money from the fund is paid out and received by the contributor.
If the payments are made after the money has come into the possession of the contributor then Zakat is payable on the money that accumulates in the fund.
Who is entitled to receive Zakat?
This category of people is defined in the Holy Quran: “The alms are only for the poor and the needy, and those who collect them, and those whose hearts are to be reconciled, and to free the captives and the debtors, and for the cause of Allah, and (for) the wayfarers; a duty imposed by Allah. Allah is All knower, All Wise.” (Al-Quran 9:60).
How often do they have to pay Zakat?
Each Muslim calculates his or her own Zakat individually. For most purposes this involves the payment each year of two and a half percent of one’s capital.
A pious person may also give as much as he or she pleases as Sadaqa, and does so preferably in secret. Although this word can be translated as ‘voluntary charity’ it has a wider meaning. The Prophet said ‘even meeting your brother with a cheerful face is charity.’
By: Sheik Amir, Chairman Ulema Board