Surah 2 (Cow) verse 277
Third Pillar of Islam
- Most of the time Zakat is mentioned joined with prayers, so much so that a companion of the prophet said, “no prayers are accepted without Zakat.”
- Zakat is frequently referred to in the Quran and Sunnah as “Sadaqatt” (meaning charity). One of the most important principles of Islam is that all things belong to God, and God entrusts that the wealth we have to us, and He prescribed certain rights to be given to different sources explained below. If the owner of the wealth is minor or insane, his guardian must pay the Zakat once it is due.
- The literal meaning of the Zakat is both as purification and growth.
- We read in Surah Tauba 9:103
“(O Mohammed) take out of their possessions Sadaqat so that you may cleanse and purify them thereby, and pray for them….
- Allah has specified in Surah Tauba 9:60
Sadaqat are for:
- the poor
- the needy
- those employed to administer the Zakat
- those whose hearts are to be won over
- freeing of human beings from bondage
- those who are burdened with debt
- for God’s cause
- for the wayfarer
- So we can say that:
- Zakat is a prescribed tax on the wealth of the Muslim
- It is the right of Allah (God) on the wealth entrusted to us
- It is a specified and determined amount of tax
- It is to be spent in specified avenues
- It does cleanse and purify you
- The proof from the Quran and Sunnah are very clear. There are more than 30 verses that talk about Zakat, as well as multiple Hadith of the prophet about Zakat.
Who Should Pay Zakat?
Every adult free Muslim person, whose wealth exceeds a certain amount known as Nisab.
Wealth Subject to Zakat
The Qur’an stipulates that all wealth is subject to Zakat. Some kinds were specifically mentioned therein. 9:35 , 2:267, and 6:141.
- Gold and Silver (bank note and equivalent)
On the day when heat will be produced out of that (wealth) in the fire of hell and with it will be branded their foreheads, their flanks and their backs “this is the (treasure) which ye buried for yourselves: taste ye then the (treasures) ye buried!”
Surah 9 Tauba verse 35
“O you who have attained to faith! Spend on others out of the good things which you may have acquired, and out of that which We bring forth for you from the earth; and choose not for your spending the bad things which you yourselves would not accept without averting your eyes in disdain. And know that God is self-sufficient, ever to be praised
Surah 2 verse 267”
“It is He who produceth gardens with trellises and without and dates and tilth with produce of all kinds and olives and pomegranates similar (in kind) and different (in variety): eat of their fruit in their season but render the dues that are proper on the day that the harvest is gathered. But waste not by excess: for Allah loveth not the wasters.
Wealth (Mal) is any economic goods having utility – a good that satisfies an economic need, or anything that has a market value and is possessed by a Muslim.
Surah 6 Cattles verse 141″
Qualification of Wealth
- A particular Muslim should possess it. Possession means acquisition and right of disposition and usage.
- Any wealth possessed by a person as qualified above must pay Zakat, even if the title of possession is illegal. Stolen wealth is not exempted from Zakat.
- The person who borrows money or a commodity and who is entitled to dispose of what he has borrowed at his own discretion must pay Zakat on what he borrowed. However, if the borrowed wealth is to meet the genuine requirement of livelihood, the wealth becomes exempt. Any person, in the categories who deserve a share of Zakat, is exempt from paying Zakat to meet his livelihood needs.
- The wealth that is used to meet a requirement of livelihood is not subject to Zakat. Thus the house you live in, the car used by you, the jewelry usually adorning the woman, the stored food provisions for the consumption of the individual or his family, all of this is exempted even its value may exceed the limit (Nisab). However, if a Muslim woman buys jewels with the intension to save her money or to invest in Gold or any other precious metal or stone of value, or keep the wealth from devaluation or otherwise, she must pay Zakat on such jewels even if she puts them on from time to time for adornment.
Limit of Exemption (Nisab)
The verse 9:60, designating the avenues of spending Zakat, seeks to meet the dire need of the poor and requirements and the like. Then those categories are exempted from paying Zakat.
- The authority of alkhudri, the prophet (pbuh) said, ”There is no Zakat on less than five Awaq (silver) and there is no Zakat on less than five Awsuq (measure of grains).”
- There is consensus of opinion about the condition of Nisab. Yet there are some differences among the jurists about whether to subject the whole produce of earth to Zakat, or to subject the excess over the Nisab only.
- Nowadays we have different kinds of wealth and some form of wealth that was not known at the old time. Can we equate the measure of dates is equivalent to pine nuts or cashews or corn?
- The Hadith, on the authority of Saeed Ibn El Musiab, who heard from Abu Huraira, the Prophet, (pbuh), said, “ The best of Sadaqat is that which is paid out of richness, but start giving it to your dependents first.” And there is another Hadith in Bukhari and Ahmed, “No Zakat is due unless in case of affluence.”
- Since Zakat is annual, it must be paid out of the excess of the original requirement for one year. We have to look at Nisab in our time based on the well known scholar and jurist, Shah Walyullah Dehalawi, who stated in his famous work ”Hujjatullah Al Baligha”.
- The amount of five Awsuq of grain or dried dates was assessed on the ground that they would suffice the minimum requirements of a family for one year (husband, wife and one child).
- Nisab should be the same in the same country, but it may differ from country to country based on the standard of living in a particular country. There is a very important rule in jurisprudence that is, “Fiqh changes in accordance with the change in circumstances while shari’a remains unchanged, thus the texts should be interpreted in the light of our actual life.” So based on that, Nisab would be the exempt amount of wealth which is considered, in a particular community, sufficient to sustain the family or the individual for one year.
To Calculate the Nisab
- The western states determine the livelihood requirements of the individual and the families composed of different numbers. This implies the required food, clothing, rent, etc., sometimes they refer to it as consumption basket.
- The value of the said basket is evaluated in terms of money at the time of paying Zakat.
- Such value becomes the Nisab and that the amount to be deducted before calculating Zakat. In the USA this is known as poverty guidelines and is published yearly.
The Yearly Term
- The wealth must remain a full year in the possession of the person before it becomes liable to Zakat. Wealth should be subject to Zakat once every year.
- Due dates for paying Zakat depends on the nature of wealth subject to Zakat.
- Zakat on liquid money and alike is levied on such funds that remain a full year.
- Zakat pertaining to commerce, industry, real-estate development and professions is to be assessed at the end of the fiscal year.
- Zakat on crops and agricultural products, salaries and regular wages and fixed incomes is to be paid on their receipt, in application of the verse: “and give its due on harvesting it.” 6:141
Amount of Zakat
- The jurist divides the wealth in the following categories:
- Animal wealth
- Gold and silver
- Jewelry, gold articles and silver
- Commercial wealth
- Agricultural wealth
- Honey and animal product
- Mineral wealth
- Investment & real estate
- Labor and professional income
- Shares and stocks
The Quran does not mentioned how much should be levied on wealth as due Zakat. But the Sunnah entails few Hadith dealing in some categories, which were common at that time.
From those Hadith, the jurist deducts some principle and differs on some kinds of wealth. I will talk tonight about Zakat of money and investments and shares and salaries and professionals income, which relate to our situation now.
Zakat on Money
- There is unanimity among the companions and the jurists that both silver and gold, being the only currency at that time, are subject to Zakat.
- The rate is 2.5%. Nowaday, we have paper and non-silver, non-gold coin, but that is our currency and we should pay Zakat on such currency. The cash balance of money plus its proceeds is subject to 2.5% per annum. Such tax on money is to encourage people to invest it and to help the welfare of the community and not to hoard the money. Read verse 9:34.
- But, as for all who lay up treasures of gold and silver and do not spend them for the sake of God, give them the tiding of grievous suffering (in the life to come).
Zakat on Investment
Invested capitals are any wealth designated to an economic activity, which yields a return to the investor. (Amwal Mustghallah). Such investment falls in several wide categories:
Entrusting cash money to others for a period of time against a certain return. The money is secured and the owner has access to it all the time. Such money is subject to 2.5% on the capital plus the yield.
The money is used in a productive process, which is expected to yield a profit. The modern “fiqh” considers the investment in industry and development analogous to agricultural investment and the yield should be subject to 10% if it exceeds the Nisab, and after deducting all expenses, including depreciation, dead debts and obsolescence.
Zakat of earned income All salaried people and professionals; doctors and contractors and alike should calculate there total income per year and after deducting the Nisab should pay 2.5% on the balance.
Zakat of minerals Mining is an activity that entails risk. It will be dealt with as industry and will be liable for Zakat for the net income at 10%.
Zakat of treasures (Rikaz) The meaning here is any wealth fortuitously found under or above the surface of the earth. The finder is not supposed to be taking any risk nor having any significant cost. Such wealth is zakatable at 20%.