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How to Calculate Zakat: A Comprehensive Guide



Zakat calculation

As the month of Ramadan is coming to an end, many of us are wondering about how to calculate Zakat. But let’s take a step back and take the time to appreciate, what is Zakat? Why does it hold such importance in Islam?

What is Zakat?

Zakat is a form of charitable donation practiced by Muslims. It involves giving 2.5% of a person’s surplus wealth, which is the savings and financial assets that are not used for living expenses. It is important to note that only income that is not used for essential needs such as bills and house payments is included in the calculation. There are other conditions that need to be met to determine whether someone is required to pay Zakat or not.

What is Nisab for Zakat?

Nisab refers to the minimum amount of wealth that serves as a criterion to decide whether or not Zakat is compulsory for an individual. If an individual’s assets exceed the Nisab threshold, they are required to pay Zakat for that year. On the other hand, if their assets are below the Nisab limit, they are not obligated to pay Zakat.

In Islamic Law, the threshold of minimum wealth (Nisab) is determined by two set values, 3 ounces of gold or 21 ounces of silver. Since we no longer deal with gold and silver as our currency, we can calculate their cash value online.

What is Nisab of Zakat on Gold?

The Nisab by the gold standard is 3 ounces of gold (87.48 grams) or its equivalent in cash. You can use Zakat calculator online, by multiplying the number of grams by the current market value of gold.

What is Nisab of Zakat on Silver?

The minimum threshold for Zakat payment based on the silver standard is 21 ounces of silver or its equivalent in cash, which is currently calculated by multiplying the weight in grams with the current market price of silver. This Zakat calculation can be done easily online.

How much Zakat is eligible for cash?

Zakat is obligatory to be paid at a rate of 2.5% on the total amount of cash balance and bank balances held in savings, current, or fixed deposit accounts. Ideally, the balance should remain in the account for a year before Zakat is due, but it is common for the balance to fluctuate due to personal needs.

How Do I Know if I Need to Pay Zakat?

In Islam, certain conditions must be met for Zakat to become mandatory. It is only obligatory for Muslim adults who are of sound mind and possess a minimum amount of Zakatable wealth, known as Nisab, for at least one lunar year. It is worth noting that Allah (swt) does not burden a soul with more than it can bear.

Most scholars agree on these basic conditions for Zakat. However, some schools of thought argue that Zakat is also due on minors who possess wealth or inheritance, provided they meet the other conditions such as being a Muslim, possessing complete ownership of the wealth for one lunar year, and meeting the Nisab threshold.

It is important to clarify that this doesn’t apply to children’s allowances or Eid money, but rather to minors with trust funds and inheritances. The details and technicalities of this matter are beyond the scope of this blog post. For more information, you should consult your local scholar. We wanted to bring this possibility to your attention.

How To Calculate Zakat?

In order to know how to calculate Zakat, you need to follow a simple formula.

 Sum up all your sources of income

First, add up all your sources of income, which include all the assets you have owned in the past year, such as cash, gold, silver, stocks, and business inventory.

Cash + Gold & Silver + Debts Owed to You* + Investment Property* + Shares & Stocks* + Investment & Saving Funds* + Business Assets* = Your Total Income

You need to pay special attention to assets marked with an asterisk (*), as they have some specific considerations and instructions that you must follow.

Total up your immediate needs and living expenses

This includes:

Personal & Living Expenses + Debts You Owe* + Business Expenses* Your Living Expenses

Those above marked with an asterisk (*) have some special considerations and instructions.

Find out your total Zakatable Wealth

Your Total Income – Your Living Expenses = Your Zakatable Wealth

Check if it’s above threshold for Nisab

Once you have decided whether to use the gold or silver value for Nisab, the next step is to determine the current cash value of your Nisab threshold. If the value of your Zakatable Wealth exceeds the Nisab threshold, then you can proceed to the next step.

Calculate how much Zakat you have to pay

Your Zakatable Wealth x 2.5% = Total Zakat You Owe for the Year

We hope this helps you understand the fundamentals of how to calculate Zakat!

Zakat FAQ

When does the zakat year begin?

To determine the starting point for how to calculate zakat, identify the date when you first possessed wealth above the nisab threshold.

This will be your seed date, and you should calculate zakat on that date every year, regardless of any fluctuations in your wealth throughout the year.

However, if you experience total bankruptcy and lose all your assets, your seed date will change to the date when you acquire wealth above the nisab again. If you’re unsure of your seed date, make an estimate based on the best information available.

I earned a large amount of cash a few days before the zakat year was up. How do I calculate my zakat?

In the matter of paying zakat, one must consider the zakat year that has passed and not the specific time of receiving the wealth. This means that even if someone acquires cash a day prior to the completion of the zakat year, they still have to pay zakat on it the following day.

I saved some money for hajj. Do I pay zakat on it?

Yes, zakat is payable on money saved for hajj, provided it is kept for one lunar year, and your total wealth meets the nisab threshold.

I have debts. Do I pay zakat?

The principle states that one should deduct their debts from their wealth, and if the remaining amount exceeds the nisab threshold, then zakat is obligatory. However, if an individual has a substantial debt that they are paying off in installments, such as a mortgage or a significant credit card debt, they should deduct only the amount of the current payment from their assets.

I lent some money to someone, do I pay zakat on it?

Yes. There are two options for paying zakat on a loan: either pay it every year until the loan is repaid, or wait until the loan is repaid and pay the accumulated zakat in a lump sum. If the loan is uncertain, and there is doubt whether the borrower will repay it, it is advisable to delay paying zakat until the loan is repaid. At that point, one must pay the zakat accumulated over the years. If the loan is never repaid, then no zakat is due.

Can I pay zakat in advance?

Yes, zakat can be paid in advance before the year has ended, but you should make sure you have wealth equal to or above the nisab.

I gave a lot of money to charity over the year. Does that count as zakat?

To qualify as zakat, a donation must have a distinct intention at the time of separating the zakat money from one’s total wealth or when making the zakat payment.

Do I pay zakat on wealth belonging to my children?

The Hanafi school does not consider a child liable to pay zakat, even if they have wealth above the nisab threshold. Instead, the first zakat payment will become due twelve lunar months after the child reaches puberty, provided they possess wealth above the nisab. On the other hand, according to Imam Shafi’ and Imam Malik, a child who possesses wealth above the nisab is liable for zakat, just like an adult.

The blog aims to provide readers with the necessary knowledge about how to calculate Zakat accurately. Whether they are new to this practice or have been doing it for years, the hope is that the information presented will enable them to perform this act of worship with excellence.

By giving Zakat, one can draw closer to Allah’s pleasure and mercy, and contribute to helping those in need. Ultimately, the goal is to collectively bring healing and support to those who require it the most.

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