Answers to common questions related to zakat
It is always advisable to seek guidance from your local imam or a qualified Islamic scholar for any specific Zakat-related queries, as they can provide tailored advice based on your individual circumstances and the prevailing interpretations of Islamic law in your community. They can also provide guidance on the proper distribution of Zakat funds to ensure that they are given to eligible recipients in a manner that complies with Islamic principles of social justice and compassion.
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Nisab
In order to be liable for Zakat, an individual’s wealth must exceed a threshold amount, called the ‘nisab’. There are two measures to determine the nisab – either by gold or by silver.
By the gold standard, the nisab is the value of 3 ounces of gold (equivalent to 87.48 grammes) or its cash equivalent. As of 16 April 2019, this is approximately $3,560, but may vary depending on the current market value of gold.
By the silver standard, the nisab is the value of 21 ounces of silver (equivalent to 612.36 grammes) or its equivalent in cash. As of 16 April 2019, this is approximately $324.
Should I use the gold or silver nisab?
The nisab calculated using the silver standard is significantly lower than its gold counterpart, primarily due to the decline in the value of silver since the time of the Prophet (peace be upon him).
There are arguments for using either nisab value – some scholars suggest that using the silver nisab is better as it would result in a larger amount of charity being distributed, while others argue that the gold nisab is more consistent with the nisab used during the time of the Prophet (peace be upon him).
However, if an individual’s assets consist entirely of gold, they must use the gold nisab, and similarly, if their assets consist solely of silver, the silver nisab must be used for Zakat calculation purposes.
What part of my wealth is ‘zakatable’?
Gold and silver, including jewellery, are considered zakatable assets as they have intrinsic monetary value, according to the Hanafi school of thought. Other precious metals and stones are not zakatable unless they were acquired for the purpose of trade.
Cash, both at home and in bank accounts, savings, money lent to others, saving certificates, bonds, shares, investment certificates, and other forms of monetary assets are all taken into account when calculating Zakat.
In addition, any goods purchased with the intention of selling for profit, such as stock for trade, are considered zakatable assets and must be included in the calculation of Zakat.
What part of my wealth is not ‘zakatable’?
With the exception of gold and silver, Zakat is not payable on personal belongings such as a house, car, or any other goods that were not acquired with the intention of trade or sale. These assets are considered personal use items and are not considered zakatable wealth.
I have more money than the nisab but I need it for my living expenses.
If an individual’s total wealth exceeds the nisab threshold, but they have necessary expenses such as rent, food, clothing, and other basic needs for themselves and their dependents, then these expenses may be deducted from their total wealth when calculating Zakat.
If the remaining amount after deducting these expenses is less than the nisab threshold, then no Zakat is payable for that year. However, if the remaining amount exceeds the nisab threshold, then Zakat must be paid on the remaining amount.
When does the zakat year begin?
The Zakat year begins on the date an individual first acquires wealth exceeding the nisab threshold. This date is known as the “seed date.” Regardless of any fluctuations in the amount of wealth during the year, Zakat must be calculated and paid on this date every year.
The only situation in which an individual’s seed date will change is if they become completely bankrupt and lose all their assets and belongings. In this case, the new seed date will begin when they once again acquire wealth exceeding the nisab threshold.
If someone is unsure of their seed date, they should estimate it to the best of their ability, and then calculate Zakat accordingly.
My wealth decreased below the nisab for a few months during the year. Do I still pay zakat?
Yes, that’s correct. As long as an individual is in possession of wealth exceeding the nisab threshold at the beginning and end of the Zakat year, Zakat will be due, even if their wealth dipped below the nisab threshold for some or most of the year.
The payment of Zakat is determined based on the Zakat year and not on when particular portions of your wealth came into your possession. Even if you received cash a day before the Zakat year ended, you would still be required to pay Zakat on it the following day, provided the total amount of your wealth exceeded the nisab threshold at the beginning and end of the Zakat year.
Savings
I saved some money for hajj. Do I pay zakat on it?
That is correct. Any money saved specifically for performing the obligatory pilgrimage to Mecca (Hajj) is subject to zakat if it has been in one’s possession for a full lunar year and meets the nisab threshold. This is because the money is considered part of one’s overall wealth and is not exempt from zakat.
Do I pay zakat on my pension fund?
Pensions can be funded in two ways:
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By having payments deducted from a salary before the contributor receives it.
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By having the contributor make payments from money already in their possession.
If the payments are deducted from the salary before it reaches the contributor, then zakat is not due on the payments or on the accumulated amount in the pension or provident fund. Zakat will only become due when the money is paid out to the contributor.
However, if the pension payments are made after the money has already come into the contributor’s possession, then zakat is payable on the accumulated money in the fund.
I have some shares. How do I calculate what zakat I owe?
There are two types of shares: those purchased by a speculator who trades in shares, and those bought for investment purposes.
If you are a speculator who has bought shares with the intention of selling them for profit, then the entire market value of the shares is subject to zakat since it is considered as stock in trade.
However, if you have purchased shares for investment purposes and to receive dividends, then you need to calculate the percentage of zakatable assets the company has and pay zakat on that percentage of the value of your shares. To do this, you would have to examine the company’s yearly accounts and determine what percentage of its assets are stock, raw materials, cash, gold, or other zakatable items. Buildings, machinery, vehicles, and other essential assets for the business are not zakatable.
Debts
The fundamental rule is to subtract debts from wealth, and if the remaining amount surpasses the nisab threshold, zakat is compulsory; otherwise, it is not required.
Nevertheless, in the case where a person has a substantial debt that is being repaid in installments, such as a mortgage or a considerable credit card debt, only the payment that is currently outstanding from their assets should be deducted.
Someone owes me money for work I did for him, do I pay zakat on it?
You are not obliged to pay Zakat on money owed to you for your work until you receive the payment. In the same way, if you have not yet received a dowry or inheritance share, Zakat is not due on them.
I lent money to someone, do I pay zakat on it?
Certainly. There are two options available in terms of paying zakat on loans. You can either pay zakat annually for each passing year until you receive the loan back, or you can wait until you receive the loan and pay the accumulated zakat in a single payment.
In cases where the loan is considered insecure and there is uncertainty regarding the borrower’s ability to pay it back, it is better to defer the zakat payment until the loan is received. At that point, you would be responsible for paying the zakat that has accumulated over the years. If you never receive the loan back, then zakat is not payable.
Businesses
I have my own business, how do I pay zakat on it?
If you run a business, then all items in stock that are intended for sale, including land and real estate that were purchased with the intention of resale, are eligible for zakat. This also applies to raw materials and manufactured goods that are produced for sale. However, buildings, machinery, vehicles, and other essential items used in the business are exempt from zakat.
How do I calculate the value of stock in my shop?
To determine the zakatable amount for the stock in your shop, you should consider its market value rather than its purchase price. This can be calculated by estimating the total amount you could expect to receive if you were to sell the entire stock at once to a single buyer.
Certainly, zakat would be payable on it. However, when determining its value, you should take into account the price at which you would be able to sell it.
You can deduct a loan taken out to acquire zakatable assets such as raw materials and goods from your capital when calculating zakat. The remaining amount is then subject to zakat. However, a loan taken out for non-zakatable assets like furniture, machinery, and buildings cannot be deducted.
General zakat questions
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Must be a free Muslim.
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Must be of sound mind, and in the case of Imam Abu Hanifa’s interpretation, must be sane. On the other hand, according to Imam Malik, even if someone is insane, they are still liable to pay zakat.
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Must be an adult. Children are not required to pay zakat, even if they possess enough wealth to be eligible for zakat. However, Imam Shafi’i and Imam Malik suggest that the guardians of children should pay zakat on their behalf.
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Must have complete ownership and control over their wealth. The person must own and have possession of the wealth and be free to utilize or dispose of it as they see fit. If a person has lent their wealth, they cannot use it until it is repaid.
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Must possess wealth exceeding the nisab limit. The person should own wealth above a specific amount required to meet their essential needs and the needs of their dependents (nisab).
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Must not be in debt. If someone has outstanding debts, they may subtract them from their assets. If the remaining amount is still above the nisab limit, zakat is required; otherwise, it is not.
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Must have possession of the wealth for an entire lunar year (Hijrah). If one owns zakatable wealth for a lunar year, zakat will become obligatory on the amount remaining at the end of the year, provided the total amount of wealth exceeds the nisab at the beginning and end of the year, regardless of any fluctuations throughout the year.
Certainly, it is possible to pay zakat in advance before the end of the lunar year, but it is important to ensure that one’s wealth is equal to or above the nisab at the time of payment.
To qualify for zakat, the recipient must be a Muslim who is poor and unable to meet their basic needs. The definition of a poor person is someone whose wealth does not exceed the nisab threshold after meeting their basic necessities.
It’s not permissible to give zakat to your spouse, parents, grandparents, or children. However, you can give zakat to other relatives or people outside your immediate family.
It’s not permissible to give zakat to Hashimis, who are descendants of the Prophet (peace be upon him).
Prior to the Eid al-Fitr prayer which marks the end of Ramadan, every Muslim adult who possesses excess food beyond their needs must pay zakat al-fitr for themselves. The head of the household is responsible for paying zakat al-fitr on behalf of all their dependents, including children, servants, and elderly relatives. Payment can be made during Ramadan or before Eid al-Fitr prayers at the latest to ensure the poor can enjoy the day of Eid.
The minimum amount payable is about 2 kg of staple foodstuff, such as wheat flour or rice, per member of the household, including children and dependents – even those who do not reside in the same house. A safe estimate is roughly £5/US$7 per head.
To be eligible for zakat al-fitr, recipients must be poor or in need and entitled to receive general zakat. It is important to note that zakat al-fitr cannot be paid to immediate family members, including spouses, children, parents, and grandparents. However, it can be given to other relatives who are eligible to receive zakat. Islamic Relief serves as a charitable agent, using your zakat al-fitr to purchase and distribute food on your behalf.
I gave a lot of money to charity over the year. Doesn’t that count as zakat?
To be considered as zakat, a donation must be accompanied by a clear intention at the time of separating the zakat funds from the rest of your wealth, or at the time of making the zakat payment.
Do I pay zakat on wealth belonging to my children?
In the Hanafi school of thought, a child is not obligated to pay zakat even if they possess wealth above the nisab threshold. The zakat payment becomes due for the child 12 lunar months after they reach puberty, provided that they possess wealth above the nisab. However, according to Imam Shafi’ and Imam Malik, a child who possesses wealth above the nisab is liable for zakat just like an adult.