In the name of Allah, the most Beneficent the most Merciful Allah Subhanahu Wa Ta’ala mentions in the Holy Quran: Surah 24, Chapter 18 verse 56: “And establish prayer and give the poor-due (Zakat) and obey the Messenger haply; you may be shown mercy”
Given the fact that zakat is one of the five fundamental principles of Islam, one needs to properly understand the concept in order to implement it in ones’ life so that Almighty Allah showers His mercy on the person who wilfully applies this concept of charity.
Muslims are required to fulfill this religious obligation and the rights of the poor. If the concept of Zakat is followed properly by the people who are religiously obliged to pay Zakat to the deserving, poverty can be eliminated from the world and everybody can lead a comfortable life. The majority of Muslims today do not properly know how to calculate Zakat (especially given the new forms of income that were not prevalent in the past). We have made efforts to collect information available from internet based on Hanafi school of thought and tried our best to include all possible facets required for calculating the Zakat.
We advise our readers to kindly consult scholars to ascertain the correctness of your calculations. We do not claim or vouch the correctness of the calculations of Zakat published herein.
1.1 What is Zakat?
The literal meaning of Zakat is “to purify, to grow, and to increase.” It is an obligatory act of charity ordained by Allah Subhanahu Wa Ta’ala (The Glorified and Exalted), to be performed by every Muslim who possesses a certain minimum amount of wealth/assets (called Nisab) for a complete Hijri lunar year cycle (called Hawl). It is an act of worship (ibadah) and not a tax.
Zakat is applicable on specific assets only, identified by Islamic Law as assets having the potential for growth, called “Zakatable Assets.”
Zakat is the compulsory transfer of ownership of a portion of the wealth of the giver, calculated at the rate of 2.5%, to poor and deserving Muslims who qualify to receive Zakat according to Islamic Law.
Zakat is calculated on the total market value of all Zakatable Assets after deducting all Zakatable Liabilities.
1.2 What are Zakatable Assets?
Assets which have the potential to grow are Zakatable Assets. Assets on which Zakat was due during the early Islamic Era and are still applicable include: gold, silver, business merchandise inventory, livestock, agricultural produce, buried precious metals or minerals (rikaz), profits from investments, accounts receivable, real estate business investment inventory (acquired for gain).
Assets on which Zakat is due today which were not prevalent in the past include: cash, cryptocurrencies, stocks, mutual funds, stock options, employee stock purchase plan, private companies, corporations and partnerships, retirement and education plans, real estate business investments in property owning companies, trusts, lump sum payments in terms of compulsory pension and provident funds, severance packages, income-tax refund.
1- Please keep in mind that any financial transaction that involves interest is considered unlawful (haram) in Islam. Muslims must be very careful to avoid such financial dealings in order to please Allah (SWT) and to keep their wealth purified and blessed. “Allah will destroy Riba (usury) and will give increase for Sadaqat (deeds of charity, alms, etc.) And Allah likes not the disbelievers, sinners.” [Al-Qur’an 2:276] “O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.” [Al-Qur’an 2:278-279].
1.3 What are Zakatable Liabilities?
Any liabilities on Zakatable Assets are called Zakatable Liabilities, and one should deduct their value from their total Zakatable Assets. For example, the amount owed for acquired gold or silver jewellery, or borrowed money which you have to return are both examples of Zakatable Liabilities.
1.4 What are Non-Zakatable Assets?
Any possessions that are not of productive nature, even if they exceed one’s needs are Non-Zakatable - provided they are not intended for business gain/profit. This can include such assets as: cars, utensils, furniture, homes not used for business purposes (such as a house one lives in, etc).
Lastly, if one’s total Zakatable Assets are below the value of Nisab, all their assets will be Non-Zakatable.
1.5 What are Non-Zakatable Liabilities?
Liabilities due on Non-Zakatable Assets are called Non-Zakatable Liabilities. Non-Zakatable Liabilities can not be deducted from Zakatable Assets. Examples of Non-Zakatable Liabilities include: a loan on the house one lives in, a loan on a car one uses for transportation, liabilities which one must pay back, etc. Because one does not pay Zakat on the house they live in, or the car they drive - then they can not deduct the money owed on such things from their total Zakatable Assets.
1.6 What is Hawl?
The passing of one full lunar year cycle under the Hijri calendar is called Hawl.
1.7 What is Nisab?
The minimum amount of Zakatable Assets which makes one liable to pay Zakat is called Nisab. In other words, any person who possesses this minimum amount of assets, or Nisab, for one Hijri lunar year cycle (hawl) is obligated to pay Zakat. Similarly, if one does not have Nisab in their possession for the entire Hijri lunar year cycle, even if for just one day - they do not have to pay Zakat and are actually eligible to receive Zakat.
Nisab is nothing but a yardstick to find out who should pay Zakat and who should not. It has no effect in calculating a person’s Zakat.
2.1 Nisab for Gold and Silver:
According to hadith, Nisab can be according to the value of 20 dinar/20 mithqal of gold ~ (87.49 grams), or 200 dirhams/5 awaq of silver ~ (613.35 grams).
• To find out the value of 87.49 grams of gold or 613.35 grams of silver, one must first find out the current value of gold or silver in the fluctuating market on the date of calculating zakat.
• The price of gold was approximately Rs 3000/- per gram. Therefore, the Nisab for gold is Rs. 3000 x 87.49gm.
• The price of silver was approximately Rs 60/- per gram. Therefore, the Nisab for silver was approximately Rs. 60 x 613.35 grams).
If a person has wealth of nothing else but gold, then Nisab will be calculated according to the Nisab of gold, similarly for silver. But if a person has wealth comprising of gold, silver, cash, and other Zakatable Assets, in that case for calculating one’s Nisab - scholars have different opinions on whether one should use the price of gold or silver. The opinion of the majority of Hanafi scholars is that Nisab should be according to the value of silver so that more poor people may benefit.
2.2 Nisab for Cash:
• The Nisab for cash is equivalent to the Nisab of gold or silver, whichever is less (per scholars), in order to benefit more Zakat recipients. During the early Islamic Era, the value of Nisab for 20 dinar/20 mithqal (87.49 grams) of gold was equal to the Nisab for 200 dirhams/5 awaq (613.35 grams) of silver. Over the last 1400 plus years, there has become a big difference between the two.
• Presently, the Nisab of silver is less, so Zakat on cash can be calculated according to the Nisab of silver.
2.3 Nisab for other Assets:
• Nisab for business merchandise should be converted into cash, and dealt with similar to how cash is dealt with.
• Nisab for agriculture products including wheat, barley, dry dates, dry raisins, rice, lentils, etc. is estimated at approximately 900 kg or 5 awsaq (1 wasq = 60 sa, 1 sa = 3 kg).
3.1 Zakat calculation for a person whose assets have just reached above Nisab:
• A person who has just started earning or has acquired some Zakatable Assets as a gift should note down the date and month of the Islamic calendar year once their assets reach Nisab. This date will be the starting point of the Hijri lunar year cycle, in which Zakat would be due after the completion of one year from that date.
• If this person’s Zakatable Assets stay above Nisab for an entire Hijri lunar year, then Zakat is due on the total amount that same Hijri date one lunar year later, regardless of any increase or decrease during the year. The cash value of all Zakatable Assets in their possession at that time should be calculated, and 2.5% of that value should be given as Zakat.
• If this person’s Zakatable Assets falls below Nisab at any time during the Hijri lunar year, then the year cycle will restart only after their assets again reach the value of Nisab. They should again note down the date and month of the Islamic calendar year which their assets reached Nisab, and this date will be the new starting point of the Hijri calendar year in which Zakat will be due at the end.
Example 1: Abdullah is 22 years old and he has just recently started working at his first job. On April 1, 2019 (Rajab 25, 1440) after receiving his pay check, he has accumulated $600, which is above the Nisab (of silver of that day). Therefore, he notes down the Islamic month and date as per the Hijri calendar (Rajab 25, 1440) to mark the starting date of the Hijri lunar year at which Zakat will be due at the end. If Abdullah’s total accumulated cash and other Zakatable Assets remain above the level of Nisab for the entire Hijri lunar year, he will owe Zakat on the total Zakatable Assets in his possession on Rajab 25, 1441. Let’s suppose that on May 11, 2019 (Ramadan 7, 1440), Abdullah has accumulated $1500. In order to get to and from work more easily, he buys a car for $1300, leaving him with only $200 in his possession. The car is a Non-Zakatable Asset, because it has no growth potential. Considering the $200 cash (which is now below the level of Nisab) is his only Zakatable Asset, he no longer has to pay Zakat on Rajab 25, 1441. Instead, once Abdullah again accumulates cash at or above Nisab, he should again note that date to pay Zakat on his total Zakatable Assets one Hijri lunar year from that date. In the mean time, until that year is over, Abdullah is not liable to pay Zakat (obligatory charity) but he can pay Sadaqah (nonobligatory charity) as much as he likes.
Example 2: Aaminah is 16 years old. She has two gold earrings and a gold necklace with a locket, all of which is worth about $200. On April 12, 2019 (Sha’ban 6, 1440), her parents gave her $300 for completing the 10th grade, and her aunt also gave her $250 for acquiring good grades. With this $550 in cash, and $200 in gold, Aaminah now has Zakatable Assets worth $750, which is above Nisab (of silver). So she notes down Sha’ban 6, 1440, knowing that if she stays above Nisab for a Hijri lunar year, she will owe Zakat on Sha’ban 6, 1441. Let’s suppose about a month and half later, on June 1, 2019 (Ramadan 27, 1440), Aaminah gives $500 in Sadaqah (non-obligatory charity) to Hidaya Foundation to help poor children. This leaves her with total Zakatable Assets of $250, which is less than the Nisab (of that day), hence she will no longer have to pay Zakat on Sha’ban 6, 1441. Instead, once Aaminah again accumulates Zakatable Assets at or above the level of Nisab, she should again note that date as the beginning of the Hijri lunar year before Zakat is due on her total Zakatable Assets a year from that date (so long as her total Zakatable Assets stay above Nisab).
3.2 Zakat Calculation for a Person Whose Assets Increased Just Before Their Zakat was Due:
Example 3: Ali is 35 years old and a successful salesman for a tech-company in Silicon Valley. Allah (SWT) has blessed him in his income and his assets have been above Nisab since he started working out of college more than 10 years ago. Ali likes to pay his Zakat every year on the 27th of Ramadan. This year, ma shaa Allah, Ali was awarded a comission check from his job for $50,000 on Ramadan 10th, bringing his total Zakatable Assets from $100,000 to $150,000 just before the time he is supposed to pay his Zakat. Even though he has only had that $50,000 for a short time, it still falls within the period of the last Hijri lunar year. Therefore, Ali should pay Zakat on the full $150,000, and in shaa Allah, Allah would purify his assets and bless them for him.
3.3 Zakat calculation for a person whose assets have been above Nisab for several years, but has not properly given zakat:
• A well-off person whose Zakatable Assets are consistently above the Nisab does not have to note down the date and month of their assets reaching the Nisab level, as Allah (SWT) has Blessed them with plentiful wealth. Instead, they should immediately pay for the last year, and remember that date on the Hijri calendar, and pay Zakat on their total Zakatable Assets on that same date each Hijri calendar year.
• If for whatever reason, a person owes Zakat from the past several years due to not paying it properly or not paying it at all, scholars of Hanafi school of thought say that such people should put their best effort to calculate all Zakat from previous years that they owe and pay it off as soon as possible to complete their obligation towards Allah (SWT) and the rights of the poor. In case it is difficult to pay off the past years of Zakat due to whatever reason and the person cannot do so in their lifetime - it is necessary (wajib) to add what they owe of Zakat to their will, and it should be paid to the deserving from their estate before distribution among heirs.
There is another more lenient opinion by other scholars in which such people should repent and regret their actions of not paying Zakat in the past and only pay Zakat that year, and each year thereafter (on that same Hijri date). However, this person should give as much sadaqah as they can.
Ahmad is 45 years old and has a wife and three children. With the Blessings of Allah (SWT), he has been steadily employed for 23 years in a good job and has always possessed far more than the Nisab all those years. He is very kind and has always given Sadaqah (nonobligatory charity), but never really had a clear understanding about Zakat (obligatory charity) and that it has to be calculated properly and given first before any other kind of charity. While he was giving charity, he never made the intention for giving Zakat, and therefore never calculated to make sure that he was paying the proper 2.5% of his total Zakatable Assets. Recently Ahmad received “A Practical Guide for Calculating Zakat” from Hidaya Foundation and it encouraged him to sit and calculate his Zakatable Assets. When doing so, he found that his Zakatable Assets are worth $200,000, which is far above Nisab, and for the last 23 years his Zakatable Assets have always been above Nisab. First of all, Ahmad should repent for his past wrong actions (make tawbah), then he should immediately pay Zakat of 2.5% on his current $200,000 of Zakatable Assets, which equals $5000, and continue paying every lunar year on that Hijri date henceforth. If he follows the opinion mentioned above of scholars from Hanafi school of thought, he would additionally do his best to calculate how much he had to pay for the past 23 years which he did not pay, and make a plan to pay it off during his life time in shaa Allah. If for some reason he is in a bind and cannot do so, then he should add the amount of owed Zakat to his will, and that unpaid amount should be taken from his estate and given to the deserving before distribution among his heirs.
4.1 - How should you give Zakat?
It is obligatory to make an intention (Niyyah) for the fulfillment of Zakat, similar to how we make intention for our 5 daily prayers (Salah), fasting (Sawm), and pilgrimage to Makkah (Hajj). If the intention is not made, the Zakat will not be valid. While giving, the intention should simply be that “I am giving this as Zakat.” It is not necessary to reveal to the deserving person whom the Zakat is being given to, that it is Zakat.
It is better for an individual to pay his/ her Zakat directly to deserving people, if possible. However, if that is difficult for them, then they may assign the responsibility to a trustworthy individual or organization. It is the individual’s responsibility to ask questions from whoever is distributing their Zakat regarding what kind of people their Zakat is being distributed to, how and why they are selected, etc. Remember, Zakat is obligatory on every Muslim and if it is given to person(s) not deserving of it, the obligation may not be fulfilled.
4.2 - Who should receive Zakat?
There are eight groups of people on whom Zakat should be spent, as mentioned in Al-Qur’an: “The alms are only for the Fuqaraa (the poor), and the Masakeen (the needy) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allah’s Cause, and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allah. And Allah is All-Knower, All-Wise.” [Al-Qur’an 9:60]
The verse above describes the following eight groups of people:
1. Fuqaraa: Those who own property in excess of basic necessities but below the value of Nisab
2. Masakeen: Persons of extreme poverty who possess no wealth whatsoever
3. Aamileen: Employees appointed by Islamic Governments or Islamic Organizations to collect and distribute Zakat - It is not necessary that this be a needy person
4. Muallafatul Quloob: Those persons who are given Zakat with the intention of solidifying their hearts because they may be recently converted to Islam or to help bring them closer to Islam
5. Ar-Riqaab: Those in bondage or captives - This can be extended (Allah knows best) to those in modern forms of slavery, such as human trafficking, debt bondage, and contract slavery - Zakat may be used to purchase their freedom
6. Al-Ghaarimeen: A person whose debts exceed his assets and his net assets (after deducting his liabilities) are below the Nisab
7. Fi Sabeelillah: Those striving for the sake of Allah
8. Ibnus-Sabeel: A traveller who is stranded and in need of financial assistance
4.3 - Which relatives can and cannot receive Zakat?
Zakat can be given to one’s brother, sister, nephew, niece, paternal or maternal uncle, paternal or maternal aunt, father-in-law, mother-in-law, step-grandfather, or step-grandmother provided they do not have Nisab. According to some narrations, relatives and neighbours have more rights on you to receive your Zakat.
Zakat cannot be given to one’s parents, grandparents, children, grandchildren, wife, husband, or family descendants of the Prophet Muhammad ﷺ. Zakat is only given by Muslims to Muslims.
4.4 - What if every Muslim gave zakat and it was distributed properly?
On the authority of ‘Ali (may Allah be pleased with him), the Prophet ﷺ said: “Allah has enjoined upon rich Muslims a due to be taken from their properties corresponding to the needs of the poor among them. The poor will never suffer from starvation or lack of clothes unless the rich neglect their due. If they do, Allah will surely hold them accountable and punish them severely.” [Related by At-Tabarani in Al‘Aswat and As-Saghir].
If the institution of Zakat was properly practiced and implemented by those who should give it and those who distribute it, poverty could be eliminated from the face of the earth.
An example from history which demonstrates how implementation of justice in the collection and distribution of Zakat can benefit all of society is from the Caliphate of Umar ibn Abdul Aziz.
During his Caliphate which amazingly was only for a duration of 2 years and 5 months (717 - 720 CE), he made great efforts to organize the government and ensure justice to the point that his society enjoyed such a golden period that at one point, during the time of Zakat distribution for the poor, Zakat distributors couldn’t even find a single poor person in need to accept it. Thus the money was used for helping neighbouring societies, building roads, and the overall well-being of the community at large.
The abundant wealth of Muslims and their devotion to properly give their Zakat, combined with the justice in distribution of it, is an excellent example of how positive social change is possible even in such a short period of time.
5.1 – Knowledge is Light – Vision & Mission:
Knowledge is Light envisions to reach all the deprived sections of the society to provide elementary education, job skills and training to enable them to lead a respectable life in the society and contribute to national growth and secular fundamentals.
Knowledge is Light intends to strive towards achieving the goal of 100% literacy by identifying the children who are deprived of elementary education and to help them enrol in schools and take care of all the expenditure required for their successful completion of minimum 10th grade and up to any higher level of education that any child may desire.
Knowledge Is Light wishes to provide an opportunity to the like-minded who are socially committed with a desire to sacrifice their time and effort in order to achieve this Mission.
5.2 - How Does Knowledge is Light Distribute Zakat?
Knowledge Is Light collects and distributes Zakat for various projects according to instructions given by donors. Zakat funds are used to support orphans, widows, poor elderly, families in extreme poverty, deserving students, poor medical patients, and people affected by disasters. No Orphan without Education, Support Poor Students, Job Skills Training, Adult Education, Medical Assistance, Animal Farming, Small Businesses for the Poor, Disaster Relief, Widow/ Orphan Support, etc.
5.3 - Help the poor by educating fellow Muslims about zakat and be part of Sadaqah Jariah
Knowledge is Light would like to invite you to be a part of this effort of helping Muslims gain knowledge, contribute to their families’ income, improve their well-being and ultimately contribute to nation building. The concept of Zakat and how to properly calculate it, should be made as public as possible that Muslims should be not only fulfill the religious obligations of the giver, but also fulfill the rights of the poor and you will be rewarded for your effort In Sha Allah.
We welcome you to be a part of this unique movement to share and give knowledge to all.
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