Zakat FAQ

Zakat is one of the major religious duties in Islam. 

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Q0. What is the definition of  Zakat?

 Literal meaning of the word "Zakat" is cleansing and growth. In keeping with these qualities, Allah has prescribed Zakat as an obligatory charity, as a duty to Allah, upon every wealthy individual. Wealthy individual is defined as one who is in possession of a minimum amount of wealth called Nisab for an entire year. This charity is prescribed in order to cleanse the individual's wealth, heart, and by extension the society in general, of the baser characteristics of miserliness, selfishness, greed, and materialism and replace them with higher qualities of generosity, love and care, and mutual help.

Various scholars have defined it more or less in this manner. They have also developed further definition of the amount that constitutes Nisab, categories of wealth, the rate of Zakat that applies to each category of wealth, and the rules of eligibility for receiving assistance from Zakat.  

 

Q1. What is the difference between Zakat and tax?  

1. Difference in Case of Savings and Income :-
Zakat : Zakat is imposed on the savings of the people.
Tax : Tax is imposed on the incomes of the people.

2. Payment :-
Zakat : The payment of Zakat is a religious.
Tax : The payment of tax is not a religious duty if it is not paid then it will be violation of the laws of the state.

3. Difference in Rate :-
Zakat : The rate of Zakat is fixed foe ever.
Tax : The rate of tax changes with the changing conditions of the economy.

4. Case of Exemption :-
Zakat : Zakat can not be exempted.
Tax : Tax can be exempted in some conditions.

5. Difference in Utilization :-
Zakat : Zakat can be spent on specified items mentioned in Quran.
Tax : Tax is spent on the general welfare of the public.

6. Imposing Case :-
Zakat : Zakat is imposed only on the Muslims.
Tax : Tax is imposed on all the citizens, Muslims and Non-Muslims.

7. Paying Method :-
Zakat : Zakat is paid to needy and poor people.
Tax : Tax is collected by the government and spent on the general welfare.

8. Levied Method :-
Zakat : Zakat is levied on all types of goods like gold, animal, cash etc.
Tax : Tax is levied on the income of the people.

9. Difference in Feelings :-
Zakat : Zakat payer feels pleasure while paying Zakat.
Tax : Tax payer feel pinches while paying tax.

Q2. What is the position of Zakat in Islam?

 Zakat is one of the pillars of Islamic life. It is a duty to Allah that obligates every wealthy individual to share with the needy a portion from his/her wealth. It is a very important institution for the individuals as well as the society in general. This institution aims at not only alleviating the financial hardships of the less privileged in the society through sharing a small part of one's wealth, but also building a society on higher moral and spiritual values. It checks the baser instincts of greed, miserliness, and selfishness, which lead to materialism. It promotes mutual caring, love, and generosity leading to gratitude to Allah. For those who receive assistance from Zakat, it reduces their economic burden and they are enabled to pay attention to the family, social, and spiritual aspects of their lives. 

Though Zakat is an act of sharing, it is discharged, as a duty to Allah, and in that respect is distinct from an act of normal charity. 

If there is an Islamic government, Zakat will be collected by the Government and distributed to the needy. In the absence of such an arrangement, this function can be discharged through any voluntary collective effort, for example, through any private organization. Ultimately every individual is personally responsible for discharging this obligation and must take care of this every year.

 

 Q3. What is Zakat-al-mal, and what is Zakat-al-Fitr? 

Zakat-al-Mal is the obligatory charity paid by an individual to the needy. It is obligatory on an individual who possesses wealth equal to or above a minimum amount called Nisab for an entire lunar year. For the purpose of calculating Zakat, different categories of wealth are defined. Nisab for the category of "Personal wealth" is three ounces of gold (or its equivalent amount in money). However, this amount is defined for each type of wealth separately. See under Nisab.

Zakat-al-Fitr is a special charity paid to the needy on or before the day of Eid-al-Fitr, which is first day of the month of Shawwal following the month of Ramadan. An individual who is in possession of the Nisab, (three ounces of gold or its equivalent amount), on the day of Eid-al-Fitr pays this Zakat. For Zakat-al-Fitr, one does not need to possess Nisab for the entire lunar year. This is paid as atonement for any shortcomings in the worship of Fasting during the month of Ramadan. This is calculated as a fixed amount per person. An individual pays this on his/her behalf and the dependents. This amount is specified as the cost of one normal meal and therefore it varies based upon the time and place. One may estimate this amount oneself or contact any Islamic scholar or institution for help. 
 
 

 Q4. What are the categories of wealth on which Zakat is due?

 

 There are, in general, the following categories based upon commonality of either the Nisab or the rate at which Zakat is calculated for different types of wealth. They are:

1. Personal wealth, which includes the following.
    o Money beyond the normal level needed for everyday expenses,
    o Gold and silver,
    o Jewelry (only the gold and silver content),
    o Stocks,
    o Profit from business,
    o Inventory levels in business of unfinished and salable items,
    o Money held in restricted funds such as retirement funds when they are freed for use.

2. Agricultural produce, which is further classified into the following.
    o Produce from cultivated land 
    o Produce from non-cultivated land

3. Items that are mined or extracted from the Earth including any buried treasure that is discovered. If this is done as a business, like in mining, and oil, it may be classified along the lines of a business.

4. Live stock, which is further sub-divided into following three categories.
    o Sheep lamb, and goats 
    o Cows and buffaloes (domestic, not wild)
    o Camels

5. All other animals
There is no Zakat on these animals that are raised as a hobby. If these animals are raised for business, the profit derived from this business will be handled as the profit gained from any other business, viz. As a part of the "Personal wealth" category. There will be no tax on its inventory since its exact count can not be established with certainty. For example, animals in a fish farm.

Q5. Is personal jewelry to be included in calculating Zakat?

There are different opinions about this. However, the general opinion is that jewelry, whether it is normally in use, or stored for occasional use, must all be included in calculating Zakat. The value of the gold or silver content in the jewelry should be included in the category of "Personal wealth". Precious stones (diamonds, ruby, pearls, etc.) are not to be included neither the labor cost of making the jewelry is to be included.

Q6. How do we treat money invested in shares of stock for the calculation of Zakat?

Though owning a share of stock of any business is like having a share in the ownership of the business; we have categorized it as "Personal wealth". Therefore, the lower of the value of stock at the beginning and the end of the year should be added in the category of "Personal wealth". This is categorized as "Personal wealth" because of two reasons. 

1. For the most people who own stock it is held as a saving with expectations that it will grow in value over time. In fact it is readily traded for money. Considering it as a readily redeemable asset, we have treated it as another form of saving. Therefore, we suggest using its fair market value in calculating Zakat.

2. Calculating Zakat on stock treating it as a share in ownership is normally not very convenient. There are literally millions of shares owned by general public. A stockholder will need to know his/her share of cash on hand, profit, and inventory, in order to use those values in the calculation of Zakat. This information is ordinarily very difficult to obtain, unless it is a partnership of a few people. Therefore, we did not treat stocks as a business partnership.

Q7. What is the ruling on business wealth (Net profit, investments)?

When one is engaged in business, whatever its nature, one usually invests some money in the purchase of building, furniture, and equipment. Next there is investment in inventory (raw material, or work-in-progress, or finished goods). The inventory on hand is eventually sold and converted into cash. The third element is the net profit (after all expenses and taxes etc. are paid) that the business makes. This net profit flows into the cash that the business holds for further distribution to the owners or for re-investment. There are only two items on which Zakat is paid.

1. The operating cash on hand (or in the bank) and the net profit made during the year (if not already included in cash).

2. The value of inventory at the end of the year 
These two items are to be included by the owner in the category of "Personal wealth". If there are many owners, the cash on hand, the profit, and the value of inventory shall be apportioned according to their respective shares, and each one will be responsible for the Zakat on ones individual share.

This business has to be operating for at least one year. If any share of the business is sold during the year, that share will not be included in the "Personal wealth" of the seller or the buyer because neither of them had it for at least one year.
The assets used in the production of wealth (building, furniture, equipment, and even some animals or any other assets) are exempt from Zakat because Zakat is collected from the output from those assets. 

Q8. What is the meaning and definition of Nisab?

Nisab is the minimum amount of wealth owned by an individual for one year that obligates the individual to pay Zakat. This minimum amount of wealth is separately defined for each category of wealth.

Q9. What are the specified Nisab, (minimum wealth) and the rate of Zakat for each category of wealth?

The Nisab and the rate of Zakat for each category are given below. 

 

Category of wealth	Nisab	Rate of Zakat
A. Personal wealth	Three (3) ounces of gold or its current value	2.5%
B. Agricultural produce 1. From cultivated land 2. From non-cultivated land	653 Kg of wheat or its equivalent value.	1.   5% 2.  10%
C. Minerals and Rikaz		20%
D. Live stock 1. Goat and sheep 2. Cows 3. Camels	40 goats and/or sheep 30 cows 5 Camels	See tables below

Following tables give the Zakat for the three sub categories of livestock.

Sub Category 1: Sheep, lambs, and goats
Nisab: 40	Zakat
Number owned	Zakat in kind
1  to 39	0
40 to 120	1
121 to 200	2
201 to 399	3
400	4
Greater than 400	4+1 for every 100 above 400

 

Sub Category 2: Cows, and buffaloes (Domestic and not wild)
Nisab: 30	Zakat
Number owned	One year old calf		Two year old calf	Total
1 to 29	0	+	0	0
30 to 39	1	+	0	1
40 to 59	0	+	1	1
60 to 69	2	+	0	2
70 to 79	1	+	1	2
80 to 89	0	+	2	2
90 to 99	3	+	0	3
100	2	+	1	3
Greater than 100	Increase progressively for each increment of 10 using combinations of Zakat for 30 and 40
Examples:
110 (40+40+30)	1	+	2	3
150 (30+30+30+30+30)	5	+	0	5
Alternate for 150  (40+40+40+30)	1	+	3	4

 

Sub Category 3: Camels
Nisab: 5	Zakat
Number owned	Goat or sheep (1 yr old)		One year old she-camel		Two year old she-camel		Three year old she-camel		Four year old she-camel	Total
1 to 4	0	+	0	+	0	+	0	+	0	0
5 to 9	1	+	0	+	0	+	0	+	0	1
10 to 14	2	+	0	+	0	+	0	+	0	2
15 to 19	3	+	0	+	0	+	0	+	0	3
20 to 24	4	+	0	+	0	+	0	+	0	4
25 to 35	0	+	1	+	0	+	0	+	0	1
36 to 45	0	+	0	+	1	+	0	+	0	1
46 to 60	0	+	0	+	0	+	1	+	0	1
61 to 75	0	+	0	+	0	+	0	+	1	1
76 to 90	0	+	0	+	2	+	0	+	0	2
91 to 120	0	+	0	+	0	+	2	+	0	2
120	0	+	0	+	0	+	2	+	0	2
Greater than 120	(2) three year old she-camels plus zakat from the above table for increment above 120
Examples:
140 (120+20)	4	+	0	+	0	+	2	+	0	6
190 (120+70)	0	+	0	+	0	+	2	+	1	3

Q10. Who should pay Zakat?

Zakat is obligatory on every man or a woman who is an adult, of a sane mind, and satisfies the specified Nisab. This responsibility is to be discharged by each individual based upon his/her situation and value of wealth the individual possesses.

Q11. Are minors, insane persons, and prisoners (who have Nisab) obligated to pay Zakat?

Under the condition that they satisfy the Nisab, their guardian should pay Zakat on their behalf. It is incumbent upon that guardian to make sure that the money is growing otherwise the entire amount will be eaten up over a number of years by paying Zakat itself. Various opinions in this regard are:

1. There is no Zakat on the wealth belonging to an orphan (or insane person)

2. The guardian shall keep track of the Zakat owed by the orphan under his care, and provide this information to the orphan's reaching adulthood, and finally let the orphan decide.

3. If the wealth belonging to the orphan is invested in a business and only if it is growing then the guardian should pay Zakat on the profit. If the wealth is not invested or if there is no profit, no Zakat will be paid.

4. It is required of the guardian to pay Zakat on behalf of the orphan. (We have adopted this opinion with a strong recommendation for the guardian to invest orphan's money so it can grow).
The above opinions will also apply to an insane person or a prisoner.

Q12. What conditions make Zakat obligatory on any individual?

The following conditions obligate payment of Zakat on an individual.

a. Complete ownership
	i.	If one has given his property in a public trust Zakat is not payable by that individual. But if it is a trust in the name of specific individuals, those individuals are required to include their share in the calculation of their Zakat. In the case of a "Living trust" (in the United State) where the person establishing the trust keeps complete ownership and control of the trust until his death, he will be responsible also for any Zakat that is due. Upon his death, the beneficiaries who will inherit will be responsible for any Zakat that becomes due if they own it for one full year.
	ii.	Also borrowed wealth is exempt because borrower is not the owner. See answer to the general question (Q13) relating to loans.
	iii.	For the same reason there is no Zakat on wealth acquired illegally (in a Haram - forbidden way). For example, stolen wealth does not belong to the thief.
b. Wealth shall be of the potentially growing kind
	i.	If it is naturally growing kind (Example - Live stock) Zakat is required.
	ii.	If it is not growing because of its nature, or due to reasons beyond one's control, no Zakat is required.
	iii.	If it is not growing because of negligence or mismanagement, Zakat is required.
c.	Should satisfy Nisab. It should be above the minimum level specified under category of wealth.
	i.	For the category of "Personal wealth", and of Live stock the individual shall be in possession of Nisab for one whole lunar year.
	ii.	For the category of Agricultural produce, there is no holding period of one lunar year required. As soon as the crop is harvested the Zakat should be calculated and paid. If there are multiple crops in a year, Zakat shall be paid each time, provided, of course, that the quantity of Nisab is satisfied. It should be remembered that Zakat is paid on agricultural produce that can be stored over time. In other words, there is no Zakat on perishable agricultural produce. Imam Abu Hanifa has an opinion that there is no Nisab for agricultural produce. However, other scholars have defined it based upon the prescribed Nisab at the time of Prophet Muhammad (Peace be upon him). This Nisab was five (5) Wasaq. Wasaq was a volumetric measure. A Wasaq was equal to 60 measures of a Sa'. Since present day normal measure for grain has changed to a measure of weight (such as a Kilogram), scholars have tried to define it in terms of weight of wheat of an average size. Yusuf Al-Qarzawi has calculated it to be six hundred and fifty three (653) Kg of wheat. However, what is used in India and Pakistan amounts to double the quantity around (1000) Kg. We have taken the approach of (653) Kg of wheat or its value as the Nisab for agricultural produce. Therefore, one should estimate the value of the grain and compare it with the value of (653) Kg of wheat. If the value of produce exceeds the value of (653) Kg of wheat, the Nisab is satisfied and Zakat should be calculated on the total value of the produce less any loans and expenses that were incurred in the process of producing and are payable after a harvest. An important consideration is that if this is the only source of income for the farmer for his and his dependents needs, a deduction is allowed. Scholars have determined that, a third or a fourth of the produce as the amount that should be left for the farmer. The rate of Zakat for agricultural produce (after loans and expenses are subtracted) is 10% or 5% depending upon if the produce is from non-cultivated land or cultivated land respectively. The preferred way of paying Zakat on agricultural produce is to pay in terms of the produce itself; however, to pay in monetary terms is also acceptable. Nisab defined in terms of value of (653) Kg of wheat is very helpful in case of very expensive crop (for example Saffron) for which the value of 653 Kg (of Saffron) will be excessive and unfair as Nisab. Another point to remember is that the grain or fruit in its dried and storable condition is what is used for estimating Nisab and Zakat. Grapes will be measured, for example, through the value of raisins rather than the weight or volume of the raw produce.
	iii.	For the category of Rikaz (all items mined out of the Earth including oil or other valuable fluid items, and old buried treasures that are discovered), there are various opinions. One opinion suggests that there is no Nisab. According to this opinion, any time anything is extracted from the Earth, Zakat needs to be calculated on the amount extracted. The other opinion is that its value should equal the Nisab on gold or silver, namely three ounces of gold, before Zakat becomes obligatory. It must be noted that in the case of minerals there may be other regulations enacted by the State, which may have to be complied with. The question of Zakat applies only to the portion that is clearly under the ownership and possession of the individual calculating Zakat. The question of the hold period of one lunar year is also not applicable to this category. We have taken the position that there is no Nisab on the category of Rikaz, and that the Zakat on it is 20%, calculated on the amount that is clearly and personally owned by the individual. No expenses need be deducted from Rikaz.
	iv.	If this is an on-going business, we leave to the individual the choice of treating the minerals, including valuable fluids extracted from the Earth, as personal wealth or proceeds from business, and including it in the category of "Personal wealth". In that case the Nisab of three ounces of gold and a rate of Zakat of 2.5% will apply. However, for one-time acquisitions, for example, the recovery of buried treasures there will be no Nisab and the rate of Zakat will be 20%.
d.	Wealth in question shall be that beyond the normal needs of the individual and his/her dependents. If the amount in savings is for the normal expenses, it should not be included in the calculation.
e.	The individual should not be in debt. If the individual is in debt that is not serviceable from his normal income and the only way that individual can repay his/her loans is by disposing of some or all of his assets the amount owed should be subtracted from the total value of his/her "Personal wealth" and the remaining amount evaluated to see if it meets the Nisab in that category. If it does, Zakat should be calculated upon the net value (total amount less loans). On the other hand, if loans are serviceable from the ongoing income (such as in case of regular mortgage payments or an installment loan), the unpaid loan should not be subtracted from the assets unless the individual plans to pay the loan off that year from his/her wealth.
f.	Similar treatment will apply to loans that were incurred for agriculture which are normally payable upon a successful harvest. They should be subtracted before the agricultural produce is evaluated for Nisab and Zakat. In addition, any other expenses incurred in generating agricultural produce, should be subtracted, before deciding whether the requirements of Nisab are satisfied or not. Like in the case of a business, investments made or instruments used in the case of agricultural produce are not included in calculating Zakat.

Q13. How do loans affect the obligation of Zakat?

In case of a loan, Zakat on the amount loaned to someone is primarily the obligation of the owner of the money, and the obligation is determined based upon the following conditions.

a. If the borrower is expected to return the loan in the year in question, the lender (the owner) should include the amount in his calculations. There are two opinions within this, one is that this Zakat shall be paid every year, and the other opinion is that it should be paid for all the years the loan was outstanding upon its return. 

b. In case the repayment is not expected, there are three possible opinions.
    i. Once returned, pay Zakat for all years the loan was outstanding.
    ii. Once returned, pay Zakat that year.
    iii. Once returned, pay Zakat after one year has passed since the return.

c. We favor the opinion that Zakat should be paid by the owner, upon repayment, in the year of repayment. Therefore, if a loan whose return is not expected, should be included if and when the loan is returned.

d. The impact of loan on the borrower is already explained in answer concerning conditions that make Zakat obligatory.

Q14. How do we handle amount of money in a provident or retirement fund such as a 401K account?

If this amount is available to the individual at any time without any restrictions, then Zakat should be calculated for this amount through the category of "Personal wealth" because its nature will be that of savings.
If the plan is restrictive and involves penalty and/or taxes, opinions differ on the payment of Zakat.

a. One opinion is that an individual should calculate the amount that is available to an individual after paying an early withdrawal penalty and taxes, and include this remaining amount in the calculation of Zakat as a part of "Personal wealth" category.

b. Another opinion is that Zakat should be only paid when the amount is actually received or is available to the individual without any penalty. In that case only taxes due on this amount should be deducted. The net amount after taxes (for the year the amount is completely available to the individual) should be included as a part of the "Personal wealth" category.

Q15. Can Zakat be paid with an equivalent amount of money as opposed to paying in kind?

Yes it can be paid in kind or in equivalent amount of money.

Q16. Who is eligible to receive Zakat?

The holy Qur'an specifies eight (8) purposes for which the money from Zakat can be used. They are the following.

1) Poor (Faqir pl. Fuqara'): One who cannot support himself/herself, provided (or to the extent) that the recipient of Zakat does not reach the level of Nisab.

2) Needy (Miskin pl. Masakin): One who cannot adequately support himself/herself, and is reluctant to ask for help. Such an individual, therefore, is not easily recognized as someone who needs help. Such an individual is eligible for Zakat, provided (or to the extent) that the recipient of Zakat does not reach the level of Nisab.

3) Those employed to administer the collection, distribution, and administration of Zakat (Al-'Amilin): They need not remain below Nisab at the time of receiving compensation through Zakat.

4) Those individuals who have been recently reconciled to the Truth (Mu'allafat-al-Qulub): This category includes new Muslims, or those who are willing to support the Muslim State but need to be compensated. They could be non-Muslims as well. Such individuals can be in possession of Nisab and will not be disqualified because of that.

5) Freeing of those in bondage (Fi-al-Riqab): Since the custom of bondage or slavery is now extinct, freeing of slaves may not be needed any longer. However, this can be interpreted to include individuals who due to excessive debt do not have any hope of ever standing on their own two feet.

6) Those in debt (Al-Gharimin): Zakat money could be received by on who is in debt in order to pay off the debt or a part thereof provided at the time of receiving Zakat, he/she is not in possession of Nisab.

7) In the cause of Allah (Fi-sabil-Allah): Those who are going out or working in the cause of Allah (including the task of conveying the message of Islam) or in a battle declared by an Islamic State for just cause. Being in possession of Nisab does not disqualify them.

8) The wayfarer (Ibn-al-Sabil): Traveler who is in need of help during his travel. 
One who belongs to the family of the Prophet (Peace be upon him) is not eligible for receiving Zakat.

Q17. Can relatives receive Zakat?

Yes, provided they are not the dependents, such as wife and children, and parents (including ascendants grand parents and descendents such as grand children). Beyond these relatives, in fact it would be preferred that one gives Zakat to one's relatives first. A wealthy wife can give Zakat to her poor husband and not the other way around (For details see http://islamqa.info/en/43207).

Q18. What is the proper etiquette of paying Zakat

Zakat shall be paid with the intention of paying Zakat since it is an act of worship. If an individual declares his/her Zakat in order to encourage others, it is permissible, since this an obligatory act of worship. However, it is not necessary to mention, in fact preferable not to mention, to the recipient that the payment is from Zakat, if it is feared that it would embarrass him/her.

Q19. When should Zakat be paid?

Zakat can be paid any time during the year, in one lump sum or in installments. However, at the end of each year one must calculate one's Zakat and the amount due but not paid must be paid. In actual practice, many Muslims prefer to pay Zakat in the month of Ramadan. This is also fine. Bear in mind that for agricultural produce, it is preferred to pay Zakat after the harvest.

Q20. Can Zakat be paid to institutions also?

Yes, Zakat can be paid to institutions, which meet the purposes described. 

Q21. Is there any charity beyond Zakat?

Yes, one may give extra charity beyond Zakat for any good cause, and in fact, charity beyond Zakat is to be encouraged.

Q22. What are the inner dimensions of Zakat?

In addition to alleviating the hardships of the needy and the less privileged, this act of worship provides a check against and cleanses individuals, and indeed the society as a whole, of the baser instincts, such as miserliness, selfishness, enmity, exploitation etc. that ultimately lead to materialism. On the other hand, Zakat promotes love, kindness, generosity, and sharing/caring and mutual cooperation. This also promotes relying on Allah, and sincerity in seeking the pleasure of Allah alone, and finally building a society more empathetic and more caring.
A lot has been written about the inner dimensions of Zakat. One may refer to many books available on Zakat for further details on this subject.

Q23. How do we know and follow various opinions of scholars or schools of jurisprudence (Madhahib) in calculating Zakat?

Indeed there are differences of opinion concerning the definitions of Nisab and the treatment of different categories of wealth. For the sake of providing a comprehensive tool, we have adopted those opinions, which are generally accepted by various scholars, or are easier to apply. However, other major differing opinions are also mentioned in the various answers given under frequently asked questions (FAQs) and the individual is free to follow other opinions if more appealing to him/her. For a greater in depth understanding, of course, one can access many books available on Zakat. 

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