Frequently Asked Questions

Zakat is one of the five pillars of Islam, representing a mandatory charitable contribution that eligible Muslims must pay annually. It serves multiple purposes:

• Spiritual purification of wealth
• Support for the less fortunate
• Economic balance in society
• Social responsibility and community welfare

The word 'Zakat' literally means 'purification' and 'growth.' By giving Zakat, Muslims purify their wealth and help those in need, fulfilling their religious obligation while contributing to social welfare.

Zakat is mandatory for Muslims who meet specific criteria:

• Must be Muslim
• Must be of sound mind and mature (reached puberty)
• Must possess wealth above the Nisab threshold
• Must have owned this wealth for one lunar year (Hawl)
• Must have full ownership of the wealth

The Nisab threshold is equivalent to:

• 85 grams of gold, OR
• 595 grams of silver

If your wealth exceeds either of these values and meets the other conditions, you are required to pay Zakat.

Zakat is generally calculated at 2.5% of eligible assets that have been held for one lunar year. Here's what to include:

1. Cash and Bank Balances:

• Savings accounts
• Current accounts
• Fixed deposits
• Cash in hand

2. Gold and Silver:

• Jewelry (if not for personal use)
• Bullion
• Coins

3. Investments:

• Stocks and shares
• Mutual funds
• Business inventory
• Rental property income

4. Business Assets:

• Trading goods
• Raw materials
• Finished products

The basic formula is: Total Eligible Assets × 2.5% = Zakat Payable

Zakat should be paid once a year when your wealth meets the following conditions:

1. Lunar Year (Hawl):

• Wealth must be held for one complete Islamic year
• The year starts from the day your wealth reaches the Nisab threshold

2. Popular Times for Payment:

• Many Muslims choose to pay during Ramadan
• The rewards for charity are multiplied in this month
• You can pay before your due date if you wish

3. Important Considerations:

• Keep track of your Zakat anniversary date
• You can pay in installments if needed
• Delayed payment without valid reason is considered sinful

Understanding which assets are Zakat-eligible is crucial for correct calculation:

1. Zakat-Eligible Assets:

• Gold and silver (including jewelry not for personal use)
• Cash and bank balances
• Business inventory and goods for trade
• Investments and shares
• Rental property income
• Agricultural produce (different rates apply)
• Livestock (specific conditions apply)

2. Exempt Assets:

• Personal residence
• Vehicle for personal use
• Furniture and household items
• Tools of trade/professional equipment
• Personal jewelry in use (according to some scholars)
• Retirement funds (according to some scholars)

The Quran specifies eight categories of people eligible to receive Zakat:

1. The Poor (Al-Fuqara):

• Those who lack basic necessities

2. The Needy (Al-Masakin):

• Those who cannot meet their basic needs

3. Zakat Collectors (Al-Amilin):

• Those appointed to collect and distribute Zakat

4. Those Whose Hearts Are to be Reconciled (Al-Mu'allafat-ul-Qulub):

• New Muslims and those inclined towards Islam

5. Freeing of Slaves (Ar-Riqab):

• Modern interpretation includes freeing from oppression

6. Those in Debt (Al-Gharimin):

• People burdened with lawful debt

7. In the Cause of Allah (Fi Sabilillah):

• Various interpretations include Islamic education and welfare

8. Wayfarers (Ibn As-Sabil):

• Travelers in need of assistance

Be aware of these common mistakes when calculating Zakat:

1. Calculation Errors:

• Not including all eligible assets
• Deducting liabilities incorrectly
• Using market value for gold instead of spot price
• Not considering business assets properly

2. Timing Mistakes:

• Not keeping track of the Hawl (lunar year)
• Inconsistent payment dates
• Delaying payment without valid reason

3. Asset Evaluation:

• Incorrect valuation of business inventory
• Wrong calculation of investment Zakat
• Misunderstanding personal vs. trading assets

4. Distribution Errors:

• Giving to ineligible recipients
• Not verifying recipient eligibility
• Mixing Zakat with voluntary charity

Calculating Zakat on investments requires understanding different types of assets:

1. Stocks and Shares:

• Calculate based on current market value
• Include any dividends received
• Consider intention (trading vs. long-term investment)

2. Mutual Funds:

• Use the unit price on your Zakat due date
• Include undistributed dividends

3. Property Investments:

• Rental income should be included
• Property for trading: include market value
• Property for rental only: include net rental income

4. Business Investments:

• Include working capital
• Add inventory at cost price
• Include receivables (minus doubtful debts)

5. Cryptocurrency:

• Include current market value
• Treat similar to other investment assets