The Answers to All Your Questions
What is Zakah?
Definitions:
- In the Arabic language – Increase, Purification, Blessing.As an Islamic Term
- (Technical term): – Rightful obligation upon a specific type of possession, given to a specified group of recipients,within a specified time period.
How to calculate my Zakat
There are three simple steps to calculate your Zakat.
We have broken down the calculation process into three simple parts so that you can
calculate the Zakat you owe with ease:
- Part A: Your Zakatable assets e.g. cash, savings, gold, silver, business assets etc
- Part B: Your deductible liabilities e.g. outstanding bills, immediate debts/short-term debts
- Part C: Your final Zakat calculation – this will give you your net assets
Whether you have to pay Zakat or not will be determined once you have calculated your net
assets. You then need to see whether your net assets are equal to – or exceed – the Nisab
threshold (this is the minimum amount that you must own to be deemed wealthy enough to
pay Zakat).
We have devised a fantastic online calculator to help you calculate your Zakat in the most
efficient way but if you’re not a fan of doing things online (after all, not all of us are!) you can
download our Zakat guide here and calculate your Zakat the traditional way! With your pen
and paper!
- What are your Zakatable Assets?
- What are your deductible liabilities?
- Evidence for how to calculate your Zakat
Who has to pay Zakat ?
Zakat is required to be paid if a person is:
- Adult ( have reached the age of puberty)
- Muslim (Zakat is not paid by non-Muslims)
- Sane
- In complete ownership of the Nisab
There are differences of opinion as to whether pre-pubescent children, orphans or the psychologically inept (i.e. insane) should pay Zakat.
Who has to pay Zakat ?
Zakat is required to be paid if a person is:
- Adult ( have reached the age of puberty)
- Muslim (Zakat is not paid by non-Muslims)
- Sane
- In complete ownership of the Nisab
There are differences of opinion as to whether pre-pubescent children, orphans or the psychologically inept (i.e. insane) should pay Zakat.
Who receives Zakat ?
There are eight categories of Zakat recipients to whom Zakat can be distributed. These can be identified from the following verse from the Quran: “Indeed, [prescribed] charitable offerings are only [to be given] to the :-
[1] poor and[2] the needy, and
[3] to those who work on [administering] it, and
[4] to those whose hearts are to be reconciled, and
[5] to [free] those in bondage, and
[6] to the debt-ridden, and
[7] for the cause of God, and
[8] to the wayfarer.
[This is] an obligation from God. And God is all-knowing, all-wise.”
(Qur’an, 9:60)
These eight categories can be divided into three overall categories, each with distinctive
direct recipients.
- Overall category objectives
- Qur’anic Categories
- Direct recipients
Individual support (1,2.5,6,8) Individuals: The poor without support for basic needs, those in emergencies, and people needing support to become financially sustainable
Community development (4,7)
The fourth category literally translates as ‘winning hearts’. In today’s context, this can be
interpreted as advocacy.
The seventh category literally translates as ‘God’s cause’, protecting and maintaining the Muslim community. In today’s context, this can be interpreted as community development, through building faith-based understanding and through support for key community institutions.
How will salary earners pay Zakat ?
When it comes to cash, Zakat is simply paid on the residual cash left over on one's Zakat anniversary. So it is irrelevant whether one earns money from salary, investments, benefits, gifts etc. One should simply fix a Zakat anniversary on a date in the Islamic calendar and then pay Zakat on whatever cash they have on the day, plus anything else that qualifies for Zakat.
What is the Nisab ?
Zakat is a compulsory act of worship that requires Muslims who own wealth at or above a certain threshold to donate a portion of that wealth, typically 2.5%, to those who are eligible. This threshold is called the Nisab.
The Nisab was set by the Prophet Muhammad (peace be upon him) at a rate equivalent to: 87.48 grams of gold and 612.36 grams of silver according to the Hanafi school of jurisprudence. In today’s day and age we do not use silver or gold as monetary exchange so when calculating your Zakat, you need to find out the equivalent of the rates the Prophet (peace be upon him) set but in your local currency. This can be done by checking the market rate of gold and silver today.
Remember you only pay Zakat if your net assets equal or exceed the Nisab threshold. If you only have gold as an asset, then the Nisab measure for gold must be used. If, however, you have a mixture of assets, then the Nisab level for silver should be used. Although some scholars still maintain that gold should be used regardless, using silver is safer and more beneficial for the recipients of Zakat. In most cases this means that if your net assets (income and savings) are above the silver Nisab threshold, you must pay Zakat on the total amount of wealth you own.
Which month do we need to pay Zakat ?
This depends on when your Zakat becomes due. The date on which zakat should be calculated is what we call the Zakat anniversary date.
Every believer will have their own Zakat anniversary. To work out your date, it is exactly one lunar year after the date when your Zakatable wealth first reached or exceeded the value of the Nisab.
If you cannot remember the date your wealth first reached that level, then the date should be estimated.
If this is not possible, then a specific Islamic date should be selected arbitrarily and adhered to annually going forward.
Is Zakat paid in individual wealth or assets?
(Is everything I own a Zakatable asset?)
Zakat is an obligatory Islamic tax – so important that it comprises one of the five mighty pillars of Islam. Zakat is an INDIVIDUAL measurement – so the onus and responsibility is on the individual to both pay it and to calculate how much he or she owes. Zakat is calculated on the amount of income a person has in hand after paying for all of their essentials during one full lunar year.
Zakat is by no means used as a tool to financially cripple Muslims, in fact, things like the home you live in, food, clothing etc. are not needed to calculate how much Zakat you owe. Zakat is merely calculated on your disposable income (when we say disposable income, we mean the income that you have left over after fulfilling the essential needs of yourself and your dependents [i.e. children / wives etc]).
When calculating Zakat, business assets must be taken into account; similarly, if you own real gold or silver jewellery and the weight of these are above the Nisab threshold Zakat must be paid on these items. If you have gold assets – use the gold Nisab. If you have mixed assets – use the silver nisab.
Not everybody has to pay Zakat; if your net assets do not equal or surpass the Nisab threshold then you are exempt from paying Zakat when it is due.
Am I responsible for paying Zakat of the gold jewellery of my wife?
Zakat is a personal obligation.
Every person is primarily required to pay their own Zakat. Hence, your wife will be primarily responsible to pay Zakat on her Zakatable assets such as gold and silver. However, you may pay Zakat on her behalf.
The Difference between Zakat and Zakat al Fitr
Zakat al Fitr (or Sadaqat al Fitr) is a duty that is paid on the occasion of Eid al Fitr and is required of every Muslim, whether male or female, minor or adult, if the total value of his/her Zakatable assets (cash, gold, silver, merchandise) plus non-essential items (i.e. assets above his basic needs) minus liabilities (debts) equals or exceeds Nisab. A father must also pay on behalf of his pre-pubescent children if they do not have their own wealth equal to the Nisab. If they have their own wealth equal to the Nisab, they can pay their Zakat al Fitr from their own wealth. The head of the household may pay the required amount for the other family members. In terms of amounts, it is advisable to contact your local mosque and get them to give you the recommended amount to pay per head.
The first difference between Zakat and Zakat al Fitr is eligibility. All Muslims must pay Zakat al Fitr regardless of their age or financial status (unless they honestly do not have the means to do so. The second difference lies in the amount due. The amount attributed to Zakat al Fitr is very small, and rarely exceeds £5. Zakat, however, can amount to a larger number because its 2.5% of all net savings.
The third and final difference lies in their due dates. Zakat can be paid at any time, with the only condition being that the earnings reflect one year’s worth of net savings (one lunar year). Zakat al Fitr , however, goes hand in hand with Ramadan. Zakat al Fitr is paid during Ramadan before the month ends. It needs to be paid before the Eid prayers at the very latest. This is a very specific time frame that all Muslims must abide to.
What if I do not know the date my annual Zakat day?
It is necessary to calculate Zakat correctly to ensure one is fulfilling this command of Allah properly. It is strongly encouraged that one reviews his accounts and finances for the previous years and the amount of Zakat disbursed. This will clarify if there is a deficit in payment. One can make amends thereafter.
When is Zakat paid?
Your Zakat year should begin on the date your wealth equals or surpasses the Nisab; Zakat should then be calculated and paid after one lunar year has passed which is the Hawl. Annually, Zakat should always be paid on this date. If you cannot remember the date you first became owner of the Nisab, then the date should be estimated. If this is not possible, then a specific Islamic date should be selected arbitrarily and adhered to annually. This is referred to as your ‘Zakat due date’ or ‘Zakat anniversary’ on this website.Paying Zakat in Ramadan is not necessary, although giving charity in this month guarantees greater rewards.
If you use the NZF online calculator, you will be prompted for your Zakat anniversary or be asked to choose one if it’s your first time paying Zakat. If you register for the service it will remember your Zakat anniversary and send you a reminder the following year. It couldn’t be easier!
Am I able to pay my Zakat monthly?
Once Zakat becomes due then the scholars are all of the opinion that it must be paid without delaying it unless there is a valid reason to do so. If one is unable to pay the Zakat in one payment, then he/she may be able to pay in instalments as longer as the total amount due is paid.
Why is Zakat is due on paper money?
At the time of the Prophet Muhammad (peace be upon him), Zakat was due on gold dinars and silver dirhams. Now that we use paper money, Zakat is due on the cash that forms our wealth – not solely on the exchange of silver and gold.
What if I missed a number of years of Zakat?
A person who missed Zakat a number of years has to calculate the value of the net Zakatable assets on one’s Zakat day for every year missed. The amount to be disbursed in the previous years has become a debt in one’s liability on the day Zakat was binding. Thus, the outstanding amount due on each year’s Zakat day must be paid.
How do I calculate missed Zakat?
To calculate missed Zakat, work out the total net Zakatable assets in previous annual Zakat days in the same manner when calculating your net Zakatable assets for the current year.
You can work out your net Zakatable assets by subtracting all your deductible liabilities from your gross Zakatable assets. One should try to calculate as precise and accurate as possible. To get a precise figure, one can look at previous bank statements, wage slips, invoices, receivables and other documentation related to investments.
Does Zakat become a debt?
When a person misses a payment of Zakat, the outstanding balance becomes a debt. A Zakat debt is more severe than normal debts. A normal debt is the right of the creditor who may be wealthy and affluent. Whereas, a Zakat debt has two rights attached to it; not only is it the right of a needy person, in addition, it is the right of Allah that one pays his Zakat.
Zakat on gold, silver & jewellery
Do I need to pay Zakat on my gold and silver? Gold and silver in whichever form they are in (jewellery, coins, or ingots etc.) are all subject to Zakat.
If you own personal items made from a mixture of metals, then the gold/silver is liable to Zakat if the gold/silver content can be distinguished and ascertained.
Some scholars are of the opinion that mixed metals are only liable to Zakat if half or more of the metal is gold or silver.
How much gold/silver do you have to own before Zakat is payable?
This question can be answered in the context of your net assets. You then need to establish whether your net assets equal or exceed the Nisab threshold. If you exceed the Nisab threshold then Zakat is due on all your wealth at 2.5%.
Zakat is due on 2 types of precious metals – gold and silver. Gold and silver are used as the basis for calculating your Nisab regardless of currency. This is the threshold of wealth you need to own before Zakat is due.
The gold Nisab should be used on gold assets. If there is a mixture of gold and silver assets, the silver Nisab should be used.
How do I calculate the value of my gold/silver?
Your local gold jeweller can tell you the current value of your gold assets.
They can do this in two ways:
They can give you the current value they would buy your gold at if you were to sell it Or they can give you the weight of the gold and you can calculate the value using today’s live gold price in grams – this is known as the universal measurement. This is perhaps most suitable to ensure 100% accuracy.
Zakat on property & other fixed assets
The Property and other fixed assets category does not include the home you live in but includes property purchased with the intention to make profit from reselling. In addition, the value of leased property is not subject to Zakat. Only the rental income is subject to Zakat.
Is Zakat due on the house I live in?
There is no Zakat due on the house that a person owns and lives in or in the house that he or she owns but their dependents (wives / children etc.) live in. There may, however, be Zakat applicable on any other property or building that a person owns. Use of property The Zakat that is due and obligatory depends on the use of the property and building that a person owns:
Scenarios:
Living in the property – No Zakat due. Using the property for business and trade – No Zakat is due on the property itself however there is Zakat due on business goods and profits from the business Rental income: whatever is left over from your rental income on your Zakat date after any expenses, maintenance, mortgage and so on will join the rest of your cash balance and will be Zakatable at 2.5%. It is important to note that any rental income from properties owned should be added to one’s cash balance for Zakat purposes.
Recap for property
The house in which you live is not subject to Zakat If a property or other fixed asset has been purchased with the express intent to resell, then the entire value of the property / asset is subject to Zakat If there is any other intention, then it is not subject to Zakat For example, you purchase an additional property other than the residential house & the intention for purchasing it is just to invest cash in it. In this scenario, the second house is not to live in, so there is no zakat due on it because it is a long-term investment. However, if you make an intention to sell your property, it will not be subject to Zakat. Upon the sale, any remaining proceeds on your annual Zakat day will be liable for Zakat.
Fixed assets
Like property, Zakat is due based on the use of the fixed asset and your intention. For fixed assets such as land, Zakat is not due on the land if you have simply inherited or purchased it with no particular intention or as a store of wealth.
If it was bought for investment, then Zakat is due on the approximate sale price of the land every year, on the Zakat anniversary. This means that the land needs to be valued each year to see if it’s value has increased, depreciated or remains the same. It’s always important to check to ensure that you do not over – or underpay. You can delay the payment for each year for the time when the land is actually sold. In this case it will be due for each of the previous years based on the land value at the time.
Mortgages
Mortgage payments are not deducted from your Zakatable assets. Scholars give an allowance for up to one year's worth of the non-interest portion of the payments to be deducted but this allowance should only be taken if one feels that not doing so significantly impacts one ability to make the repayments in a timely fashion. If it is an Islamic home purchase plan, then these are not considered to be debt and therefore nothing is deductible.
Zakat on stocks and shares
If you are holding these shares as a long-term investment, then Zakat is due on your proportionate ownership of the Zakatable assets of the companies in which you have invested. Normally this is done by finding out which stocks you own, how many shares you own and then using the company balance sheets to work out roughly what the Zakatable assets are in each firm. If it is difficult for you to determine this, then simply take 25% of the current market value of your portfolio as a proxy for the Zakatable assets of the underlying companies and then pay 2.5% of this value. e.g. if your portfolio is worth Ksh 10,000, take 25% which is Ksh 2,500 and then 2.5% of this which would be Ksh 62.50.
The increase and decrease in portfolio value is irrelevant – only the current value matters.
Zakat on debts owed to you
Zakat is payable on strong debts, i.e. money that is owed to you that you are confident will be paid. This may include personal loans to friends and family. This does not include outstanding wages, dowry, inheritance or assets held in trust.
A debt that is owed to you is still classed as an asset depending on certain criteria being met. It is classed as a personal asset because you are likely to get it back.
Zakat on cash and liquid investments
Zakat on salaries and income. Zakat is binding on the amount of one’s savings in the form of salaries on one’s annual Zakat day. Regardless of how much salary one received in the year, only the remainder on the Zakat anniversary will be considered and be subject to Zakat salary spent throughout the year will not be subject to Zakat.
Zakat on savings
The easiest way to work this out is to review your level of savings on your Zakat anniversary and use that for your Zakat calculation.
What about other types of income like benefits?
Other types of income such as benefits (that make up part of the welfare system in the UK) are still classed as income. On your Zakat anniversary, any money that you have with you should be included in your cash balance for Zakat purposes, irrespective of whether it came from salary, benefits, rental income etc. You need to determine whether this income takes you over the Nisab threshold and if so you will need to pay Zakat on this amount. Though some may think that benefits do not equate to Zakatable income – this is most definitely not the case.
Is there Zakat due on interest income?
If interest has been earned on your liquid investments and assets, then it should ALL be given away to charity. Interest is unlawful in Islam and therefore giving this as charity would not bring the reward that usually accompanies this good deed as we need to understand that the interest we have got on our money is NOT actually ours.
What if I own a property with rental income?
If you own property other than your home for the purposes of long-term investment without intention to resell then Zakat is due on rental income only.
Zakat on business assets and liabilities
Business assets are subject to Zakat and these include cash, finished goods, work in progress, raw materials and strong debts, i.e. money owed to the business that is likely to be received. Business assets must be valued at their current market price. For finished goods, this should be their retail sale price. For unfinished goods, this should be whatever price you expect the unfinished good to fetch on your Zakat anniversary date.
Proof from the Qur’an and Sunnah that business assets are Zakatable:
O you who believe! Give from that which you have earned and from that which we have given you from the harvests of the land. [Al-Baqarah: 267]
Charity (obligatory) is due upon camel, and upon Sheep and upon raisins. (Al-Muḥallā, (5/234-235))
By Ijma (consensus of the scholars):
Some narrations from the time of ʿUmar (Allah’s blessings be on him) show that the companions had consensus on the obligation of Zakat on business. (See Al-Mughnī (3/35) Intentions
Note: Zakat is obligatory on:
Items that are bought and sold or prepared for sale.
With the intention of business and profit.
As a result: the prevalent intention behind buying a commodity or keeping a commodity in one’s possession is crucial in ascertaining its ‘Zakatableness’.
Example:
If you buy a car for personal use but also intend to sell it if you find a good price for it – there is no Zakat due.
HOWEVER
If you buy a car with the intention of reselling it but use it in the meanwhile – Zakat is due on it.
As you can see from the above examples, intentions are key in determining whether an item is Zakatable or not. It comes down to our own personal conscience to determine the purity of our intentions and make sure that we are being honest with ourselves when conducting our Zakat calculations.
Commodities and Assets
The resources and fixed assets that are used by a business to run, such as a building, factory, warehouse, office equipment, IT systems, transport vehicles, etc… which are not directly for sale – have no Zakat due upon them. Similarly, if an investment in the capital resources is made, such as renovations of the office – then this can be deducted from the wealth upon which Zakat is due.
The majority of the scholars are of the opinion that the value of the commodity to be taken into account for Zakat purposes is the selling price and not the buying price. The price to take into account would be the wholesale selling price if most items sell wholesale or retail pricing if most items retail.
Zakat that is levied upon the businesses should be in the form of money and currency and not from the type of wealth that the business deals in – unless the poor need that type of wealth, in which case it would be permissible for the business to give the Zakat in terms of the commodity that it does business in. This is the opinion of Ibn Taymiyyah (Allah have mercy upon him).