Your Zakah Guide

What is zakah?

Zakah is the fourth pillar of Islam. It is to donate some wealth in order to purify the rest of the wealth and to help those in need [as well as to overcome selfish tendencies and the ego]

Who pays?

The person must be 1. Muslim 2. Adult 3. Sane and 4. In absolute ownership of net assets at or above the nisab threshold.

What is Nisab?

It is a threshold at a rate equivalent to [200 mithqal/ 7.5 tola or] 87.48 grams of gold (since 1 tola is 11.664 grams) or [200 dirhams/ 52.5 tola or] 612.36 grams of silver. If a person only has gold, then the nisab limit for gold will be used. However, if a mixture of assets are owned, then it is preferable to use the nisab measurement for silver.

How do I know the nisab?

Find out the market rate for a gram of gold or silver from any local jeweller or reliable website such as bullionbypost.co.uk or www.kitco.com. Thereafter multiply it by 87.48 for the gold nisab or 612.36 for the silver nisab. This will tell you the current monetary equivalent to the nisab level. For example, at 1:30pm 12/06/2016 the silver nisab was £239.43 since the market rate for one gram of silver was 0.3910 [which is then multiplied by 612.36].

How much must be paid?

The person is required to donate 2.5 % of that wealth.

When?                

It should be paid after one lunar year has passed from the date the assets owned first equalled to or were in excess of nisab. The zakah must be paid each year on this date. The fluctuation of wealth above and below the nisab during the year will not be considered.

It is permissible to prepay zakah in advance [before the anniversary date] for future years [only after completion of nisab]. However, at the time of paying zakah, the intention should explicitly be for future years, and one should ensure the correct amount was paid by calculating the zakah on the actual anniversary date. On the contrary, it is incorrect to delay or postpone payment of zakah after the anniversary date to a future date without a valid reason. Similarly, outstanding zakah from previous years should be paid immediately after [exercising all realistic attempts in] calculating the zakah due for the missed years.

Who receives?

The poor and needy whose zakatable assets as well as surplus non-zakatable assets (that are never used) are valued below the nisab level. Note that someone whose zakatable assets are valued below the nisab level, but whose surplus assets are valued above the nisab will neither pay nor receive any zakah.

It is not permissible to give zakah to the following [although they may not own wealth equal to or in excess of nisab level]: a non-Muslim (but other forms of charity other than zakah may be given to them), a Hashimi, the minor (not baligh) child of a wealthy father, ascendants (parents, grandparents, etc.), descendants (children and grandchildren etc.) or spouse. However, it is permissible to give zakah to the following [if they own less than nisab level]: close relatives (other than ascendants and descendants) including brothers, sisters, uncles, aunts etc., a poor man whose children are rich, or a poor woman whose husband may be rich.

Where?

The zakah funds should be used for a poor and needy Muslim who has no wealth whatsoever or very little wealth to the extent that he does not possess adequate food for one day. It is better to give zakat to a poor or needy person locally. However, it will be completely permissible and greatly rewarding to send zakah to another place where the poor people are:

  • One`s close relatives. The Prophet said, “Charity given to a relative it serves a double purpose, being both charity and a connecting link.” It must be noted that it is virtuous to spend zakat on one`s relatives; however, it is impermissible to give zakat to one’s ascendants (such as parents, maternal and paternal grandparents), descendants (such as one`s children, grandchildren and great grandchildren) and spouse (husband or wife). Nevertheless, the person will be greatly rewarded for spending voluntarily on ascendants, descendants and spouse.
  • Unjustly prisoned or undergoing court cases (and unable to cover expenses)
  • More deserving than local residents. The Prophet (peace be upon him) also said, “Blessed is the wealth of a Muslim from which he gives to the poor, to orphans and to needy travellers.” It is greatly rewarding to give zakah to orphans residing in orphanages. Similarly, it is appropriate to use zakah to assist poor students in schools and higher education [and particularly, in poor countries]. This will allow them to gain education or acquire some skills [without falling in any sin or crime] and thereby become independent, stand on their own feet and become contributors to zakah themselves.
  • Very wealthy at home; but, while on journey, all their money got exhausted somehow to such an extent that they now do not possess even adequate funds to reach home.
  • Engaged in religious activities. It is virtuous to give zakah to individuals to facilitate their studies at madrasahs. “One should seek out those pious people who have renounced the world and devoted themselves exclusively to the business of the Hereafter … The recipient should be chosen from among the people of learning, to support him in his quest for knowledge. Learning is the noblest form of worship, so long as it is based on right intention.” – Al-Ghazali.

[Note: It is important that each school, madrasah and orphanage ensures all rules of zakah are complied with [when given zakah] and that the poor recipient is made the actual owner of the zakah money [after which they may use it to their wish including for paying their fees or other expenses].

What must we do when giving zakah?

  1. Calculate the amount you must pay in zakah
  2. Make the intention of giving zakah [either when separating the money or when making the payment]
  3. Ensure the recipient is eligible and the value of all their non-basic personal assets is less than nisab limit.
  4. When giving zakah, make the recipient the actual and complete owner of the assets given in zakah. Hence, zakah cannot be given to general causes such as hospitals, road-making etc.
  5. You may pay your Zakah in either cash or in kind [making sure the value of goods is equal to the cash amount]

What do I have to give zakah on?

General Rule: There is no zakah at all on any assets owned [for personal use] except for cash, gold and silver, and assets purchased for the express purpose of resale.

Hence, there is no zakah compulsory on a house purchased to live in, or a land to build a house on, furniture and fittings, motor vehicle, personal clothing or any goods purchased for personal use or for renting purposes. It is only compulsory on the house, lands, vehicles, clothing or any goods purchased for the purpose of resell.

Cash

It is necessary to include all cash whether in the bank account or at home in paying zakah. However, if any interest had been earned, then it should be disposed of by giving it to poor persons immediately [without entertaining any reward of it] and the zakah will be necessary only on the principal amount.

Gold and Silver

It is necessary to include gold and silver in paying zakah, whichever form the gold and silver may be in (jewellery, coin etc.) and whether it is for personal use or otherwise. However, if any personal use item is made from a mixture of metals, then zakah will be necessary on it only if half or more of the metal is gold or silver. The zakah will be calculated on the resale value. This can be obtained either from the local jewellers or using universal measurement. There is no zakah on metals other than gold and silver, e.g. diamonds [unless acquired for commerce and trade].

Shares, unit trusts and equity investments

It is necessary to give zakah on the shares purchased with the express intention for resale. The current market value will be considered in paying the zakah. However, if the shares were purchased as a long-term investment to generate dividends, then zakah is due only on the zakatable assets of the company [based on the percentage of the shareholding] and on any dividends received.

Property and other fixed assets

It is necessary to give zakah on the entire value of the [immovable] property or fixed asset only if purchased with the express intention of resell. There is no zakah on it if purchased to reside in or for any personal use or to invest in while retaining ownership. However, while any property given on rent is not subjected to zakah, the profit accrued from rental income received is subjected to zakah. Similarly, there is no zakah on an asset purchased with no clear intention [but there will be zakah on profit received from rent].

Pensions

It is necessary to give zakah on pensions received following retirement. It is not necessary to give zakah on pension contributions made before retirement if the individual has no say over how the money is invested, such as in many final salary schemes. However, zakah must be paid [determining the amount based on the nature of the investment] in money purchase and personal pension schemes where the pension assets are invested on behalf of the pension holder (who has a choice over how to invest the money) and a specific amount of wealth is attributed to the pension holder. Nevertheless, the pension monies should only be invested in sharia compliant investment.

Debts owed to oneself

It is necessary to give zakah on strong debts (i.e. when there is confidence that the money owned will be paid) including personal loans to family and associates. Nevertheless, the obligation to pay zakah on it only arises upon retrieving the debts in which event the zakah of preceding years must also be paid on such debts. However, zakah is not necessary on outstanding dowry, inheritance or wages. They will be included in zakah only after they are received.

Business assets

It is necessary to give zakah on business assets including cash, goods whether finished or unfinished, raw materials and strong debts. The business assets should be calculated on their current market price, the finished goods on their retail sale price and the unfinished goods on their expected price at the zakah anniversary date.

There is no zakah on the following assets of an industry [unless purchased with intention of resale]: land, building, machinery, equipment, fixtures and fittings, or transport vehicles. Hence, there is no zakah on means of production which depreciate in value over time and are not per se assets capable of growth.

However, it is necessary to give zakah on the current market price of only the stock (i.e. raw materials and finished goods), cash-in-hand and on the bank balance, and accounts receivable.

Livestock

Agricultural Output

Liabilities

It is not necessary to give zakah on outstanding or overdue living expenses such as debts, rent payments and utility bills. However, for long-term debt where repayment is not required immediately, such as mortgage or students loans, you may subtract only the forthcoming lunar year`s worth of payment from the principal amount [minus the interest if any].

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Posted in Academic Research on 16th Jun 2016 by Our Imam | 2212 Views