INTRODUCTION
Zakat is the third pillar in Islam and plays a significant role in the way Muslims live and conduct their financial affairs. The recipients of zakat are a very specific group of people as outlined in the Quran, and there is a specific calculation involved.
Our online zakat calculator assists with calculating the amount of zakat that is owing.
UNDERSTANDING ZAKAT AND ITS OBLIGATIONS
WHAT IS ZAKAT?
The word zakat means growth and purification in Arabic and refers to the mandatory obligation to give a portion of wealth accrued to charity. Zakat is a fundamental obligation for all Muslims who meet the criteria, and its purpose is to purify wealth and create economic equality and enhance social welfare.
According to Islamic teachings, zakat is a fundamental act of worship. The Quran (2:110) states:
'Establish prayer and give zakat'
WHO NEEDS TO PAY ZAKAT?
Muslims who are required to pay zakat must first understand if they have accrued the minimum amount of wealth required before they become eligible to pay zakat. This is known as nisab and this is worked out based on the equivalent of 85 grams of gold or 595 grams of silver.
Those eligible to pay zakat include the following:
- Adults who have reached puberty and have wealth over the nisab threshold.
- Adults who have full mental capacity.
Zakat is payable on different types of wealth:
- cash
- silver
- gold
- business assets
- investment income
- agricultural produce.
WHEN AND HOW MUCH ZAKAT TO PAY
Zakat is due on wealth that you have been in possession of for one lunar year. It's also important to note that you can deduct immediate debts from zakatable wealth (see below).
You can pay zakat at any time of the year through instalments or in one lump sum.
CALCULATING ZAKAT STEP-BY-STEP USING A ZAKAT CALCULATOR
Muslims are expected to pay 2.5% of their zakatable wealth every year. Follow these steps to work out how much zakat you need to pay:
- Determine your zakatable wealth total by adding up your assets and deducting immediate debts.
- Ensure that you meet/exceed the nisab threshold
- Apply the 2.5% rule
- Use the online zakat calculator to work out what you need to pay
DEDUCTIONS AND LIABILITIES
There are certain debts and liabilities that be deducted when making your zakat calculation.
The following deductions are allowed:
- short term debts such as credit card balances and small loans that become due in the zakat year.
- for long term debts such as mortgages you can only deduct the payment owing in that zakat year.
- living expenses including bills, rent, good costs, transport.
- unpaid wages to employees.
- business liabilities for the zakat year.
ZAKAT PAYMENT AND ITS IMPACT
Zakat is more than a financial payment, it goes beyond wealth distribution into the realms of spiritual growth, economic justice and fulfilling an important religious obligation.
Paying zakat on time fulfils an essential Islamic obligation and strengthens the relationship with Allah.
Timely payment of zakat leads to increase in blessings and purification of our wealth.
HOW TO PAY YOUR ZAKAT
Zakat can be paid in different ways. You can pay zakat direct to individuals who are eligible to receive zakat. Zakat can also be paid to charities and global zakat funds.
Many Muslims choose to pay zakat online by utilising online zakat calculators.
RECEIVING ZAKAT
There are eight groups of people to whom zakat can be given:
The needy (this includes people whose earnings fail to cover basic needs such as food, home, water, clothing)
Those in poverty (who have little to no personal belongings and no means of earning a living)
Those employed to administer zakat monies
The wayfarer
People whose hearts have been reconciled to the faith In the cause of Allah (SWT)
People in debt
People in bondage
Recipients of zakat should not be members of your immediate family such as your spouse, parents or children. Other non-immediate relatives can be recipients of your zakat payments.
Many people give to charity throughout the year, for any donation to qualify as fulfilment of the zakat obligation, then there must be an intention to give the money as zakat.
COMMON QUESTIONS AND EXPERT ADVICE
WHAT IS NISAB?
Nisab is the minimum amount of wealth you need to have before you become eligible to pay zakat. Typically nisab is the equivalent of 595 grams of solver or 85 grams of gold.
DO I PAY ZAKAT ON MY HOME?
Zakat is not payable on your primary home. If you have rental properties then zakat is payable on the income generated.
CAN I GIVE ZAKAT TO MY FAMILY?
You cannot give zakat to immediate family, ie those already dependant on you such as your partner and children. You can pay zakat to extended family members if they are eligible.
ARE ONLINE ZAKAT CALCULATORS ACCURATE?
Yes, as long as you insert the correct information based on your personal circumstances then zakat calculators are an excellent way to calculate your zakat.
IS ZAKAT PAYABLE ON MY RETIREMENT SAVINGS?
If you have full access to these savings and you meet the nisab threshold then zakat is payable.
WHAT IF I FORGET TO PAY ZAKAT?
Use an online zakat calculator to calculate what you owe and pay your zakat as soon as you can.
IS ZAKAT PAYABLE ON STOCKS AND SHARES?
Yes, if the value exceeds the nisab threshold then zakat is payable.
SHOULD NISAB BE CALCULATED ON GOLD OR SILVER VALUES?
In the United Kingdom you can use either the gold or silver value. Many scholars believe that using the value of silver is preferable as it means the amount of zakat increases. If you have assets that mainly consist of gold then it is sensible to use the gold nisab.
WHAT IS THE ZAKAT YEAR?
The zakat year begins on the date on which you first possessed the wealth that took you over the nisab threshold. This will be the start of your zakat year. The zakat payment will therefore become due when the year has elapsed.
HOW DOES ZAKAT APPLY TO YOUR INVESTMENTS ON THE WARDUS PLATFORM?
For all of you that pay zakat, it would be on the total outstanding amount payable to you from your investments via Qardus. The investment is based on a financing arrangement which involves the buying and selling of commodities, and therefore, we believe that these assets are zakatable in nature. Therefore, investors who pay zakat would use the capital plus the profit due to them to calculate the amount of Zakat payable.
Please note that Qardus does not provide tax or other financial advice and that if advice is needed, you should consult an appropriately qualified professional.
CONCLUSION
Calculating zakat accurately and paying it in a timely manner ensures that it reaches the most vulnerable in society. Paying zakat fulfils one of the core pillars of Islam.
Using an online zakat calculator not only ensures the payment you make is calculated accurately, it saves you time and helps you to make the sometimes complex set of calculations.
Zakat calculators also guide you to eligible recipients and make it easier for you to track your zakat payment history and accountability. The calculations eradicate errors and provide an audit trail. If you have any specific questions about your zakat payment, always remembers to consult with expert scholars.
Use the Qardus zakat calculator here.
Please note that the prices information and values mentioned above are for example purposes only. For an accurate figure of the zakat you are liable to pay then it is always best to use the zakat calculator, and also conduct your own research and obtain qualified advice where required.
Qardus do not offer financial or tax advice and if advice is needed, this should be sought from a qualified professional.