How to Calculate Zakat
As one of the five pillars of Islam, Zakat holds great significance as a cornerstone of Islamic faith. The yearly obligation of paying Zakat helps to purify an individual’s wealth.
Zakat is a method of wealth redistribution that has been decreed mandatory by Allah (SWT), and for good reason. It encourages the giver to show humility and compassion to their Muslim brothers and sisters. The individuals and communities who receive Zakat have their lives transformed and their hardships lessened.
The Rules of Zakat
The obligatory act of giving Zakat must be undertaken once each lunar year. Every adult muslim of sound mind who’s total wealth exceeds the nisab value must pay Zakat. The nisab threshold is the minimum amount of wealth that a Muslim must possess before they pay Zakat.
The Zakat amount paid by each Muslim is subject to the Zakat calculation and will vary as the amount of money you need to pay is proportional in relation to your total wealth, business assets, investment property and income.
Who Is Eligible to Pay Zakat?
The concept of “nisab” in Zakat is fundamental in determining whether an individual is eligible to pay Zakat or not. Nisab refers to the minimum threshold of wealth or personal assets that a Muslim must possess in order to become obligated to pay Zakat. It serves as a guideline to ascertain whether one’s financial standing meets the requirements for Zakat.
How the Nisab Value of Gold and Silver Are Calculated
The nisab value is calculated based on the current market value of either gold or silver. The gold nisab is determined by the equivalent value of 87.48 grams of gold. The silver nisab is determined by the equivalent value of 612.36 grams of silver. These arbitrary units of measurement were set by the Prophet Muhammad himself after establishing the first Muslim Ummah in Medina, where Zakat was made mandatory.
The cash value of the nisab fluctuates with changes in the market prices of gold and silver. The Zakat nisab value is determined by multiplying the aforementioned fixed number of grams by the current market value of the precious metal.
Which Assets Are Zakat Eligible?
When an individual’s wealth surpasses the nisab value, they become eligible to pay Zakat. The amount of Zakat owed is calculated as 2.5% of the total eligible assets, which includes cash held in bank accounts, savings, personal wealth, investment funds, excess agricultural produce harvested, gold, silver, certain types of property, and other assets.
It is important to note that Zakat is not applied to primary residences or personal belongings, such as clothing or vehicles used for personal use. If an adult Muslim does not have complete ownership of their home and makes regular mortgage payments, these payments can be deducted from the Zakat owed, as debt. In addition to this, those who are self-employed may deduct the money saved in their bank accounts for tax returns from their total Zakat payment.
Understanding the Zakat nisab value is essential for Muslims to determine whether they need to pay Zakat and, if so, how much Zakat is owed. By calculating their total eligible assets and comparing it to the nisab threshold, individuals can make an accurate Zakat payment and contribute to charitable causes, purify their wealth, and fulfil this important pillar of Islam.
If you want to know more about Zakat or if you’re left wondering, What Is Zakat?, just click the link provided.
When Should Zakat Be Paid?
Zakat must be paid once each lunar year, but more specifically Zakat should be paid when a person’s Zakat anniversary occurs. The Zakat anniversary is determined individually for each adult Muslim based on when their personal wealth reaches or exceeds the Nisab threshold.
Once a person’s total wealth reaches or surpasses the Nisab, they need to wait until their Zakat anniversary to calculate and distribute their Zakat.
The Zakat anniversary is typically determined based on the Islamic lunar calendar. It begins in the same Islamic month in which a person’s wealth first reaches or exceeds the Nisab threshold. From that point, they are required to calculate 2.5% of their eligible assets and distribute it to the deserving recipients according to the guidelines of Zakat.
It is important for Muslims to keep track of their Zakat anniversary and fulfil their Zakat obligations in a timely manner. This ensures the proper fulfilment of this important Islamic duty and allows individuals to support charitable causes, help vulnerable people, and purify one’s personal wealth as per the teachings of Islam.
Most Muslims prefer to make their Zakat payments in the month of Ramadan as rewards and blessings for good deeds are multiplied in this blessed month.
How to Calculate Zakat
Muslims are encouraged to calculate Zakat payments accurately, and distribute them to one of the eight categories of deserving recipients specified in the Quran. By fulfilling the obligation to pay their Zakat, Muslims engage in a selfless act of charity, ensuring the well-being of those in need and seeking the pleasure of Allah (SWT).
Calculating your Zakat follows certain guidelines and necessary criteria. It is crucial to determine the current Nisab value, which is based on the total value of gold, silver, and other precious metals owned by an individual within the current lunar year. Islamic scholars, along with Islamic financial analysts often provide guidance on Zakat calculations.
Zakat is not limited to cash; it can include various assets, such as gold and silver jewellery, investments, and the money in one’s bank account, although there is no Zakat paid on precious stones. The total Zakatable wealth is assessed, and a specific percentage is paid as Zakat. The purpose of Zakat is to assist the poor and needy in the community, ensuring that they have access to vital necessities and a dignified life.
Here’s a step by step breakdown of how to calculate Zakat.
Step 1 – Determine Your Total Income
Identify the types of assets that fall under the category of Zakatable wealth and determine the total value of all the assets that you have owned for the past year. You must add up the cash, gold and silver, debts owed to you, investment properties, shares and stocks, money in investment and saving funds and business assets, this will give you your total income.
Step 2 – Calculate Your Total Living Expenses
To calculate your total living expenses you must total up your personal Expenses, utility bills, the debts you owe and your business expenses. This amounts to your total living expenses.
Step 3 – Calculate Your Total Zakatable Wealth
Your total Zakatable wealth is obtained by subtracting your living expenses from your total income.
Step 4 – Establish the Nisab Threshold
Check the current Nisab threshold, which is the minimum amount of wealth an individual must possess for Zakat to become obligatory. The Nisab value is typically based on the value of gold or silver in the local currency.
Step 5 – Assess Eligibility
Ensure that your total Zakatable wealth exceeds the Nisab threshold after deducting any outstanding debts or liabilities. If your wealth falls below the Nisab, you are not obligated to pay Zakat.
Step 6 – Calculate Zakat You Have to Pay
The process of calculating Zakat is an easy process. You simply multiply your Zakatable wealth by 0.025 (2.5% – the fixed Zakat percentage) to obtain the total figure of how much Zakat you owe for the lunar year.
Paying Zakat
When it comes to fulfilling the obligation of paying Zakat, most people find various ways to give their Zakat and ensure it reaches the deserving recipients. Now that you know how to calculate Zakat accurately based on your eligible assets, including cash, savings, investments, and surplus wealth, it is of paramount importance that you know how it is donated and distributed.
How Is Zakat Distributed?
To facilitate the payment process, many individuals choose to give their Zakat to established charitable Islamic organisations or institutions. These organisations have the expertise to collect and distribute Zakat efficiently, ensuring it reaches those who fall into the categories of recipients specified in the Quran. They may have specific projects or programs focused on poverty alleviation, education, healthcare, or other areas aligned with the principles of Zakat.
When it comes to the actual payment of Zakat, there are multiple methods commonly used. Some people pay their Zakat directly to the designated recipients, such as the poor, needy, or those in debt. This can be done by providing cash or transferring money directly to individuals or families in need.
Alternatively, individuals may give their Zakat contributions to charitable organisations through various channels. These organisations often provide options to donate online, through bank transfers, or using designated Zakat payment platforms. Many people find it convenient to give their Zakat to these organisations as they can ensure that their contributions are properly distributed to eligible recipients.
If you pay more than the minimum 2.5% required donation, the excess charity will be considered Sadaqah, a voluntary charitable donation.
Ultimately, the important aspect of paying Zakat is to fulfil one’s obligation of giving to those who are deserving. Whether it is through direct assistance or through established charitable organisations, the goal is to provide support to those who are in need, alleviate their hardship, and help them overcome their financial difficulties. By fulfilling this obligation, Muslims can contribute to the well-being of society, purify their wealth, and uphold the principles of generosity and compassion emphasised in Islam.