Learn About Zakat
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.
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.
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.
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 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)
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.
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.
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.
|The Nisab and the rate of Zakat for each category are given below. For further details refer to the answer for Question 12.|
Following tables give the Zakat for the three sub categories of livestock.