Faithful Finance | Key Essentials of Zakat

Many Muslims don't know about the importance of obligatory charity (Zakat) and remain unsure about how to fulfill this important duty. 

They struggle with understanding Zakat and feel confused by its rules and calculations. Without proper guidance, it's easy to feel lost and unsure about how to proceed.

Don’t worry! 

Our comprehensive Zakat guide is here to help. With clear explanations and step-by-step instructions, you'll gain the knowledge and confidence to fulfill your Zakat obligations with ease. 

Let's dive in and simplify this essential aspect of Islamic practice together.

What is Zakat?

Zakat’s meaning is 'to increase' and 'that which purifies' is a third pillar in Islam. It's about purifying one's yearly earnings by giving a portion to those in need. 

In Islam, nisab means the minimum wealth threshold for Zakat eligibility. Muslims who meet the nisab threshold are required to give 2.5% of their wealth as compulsory charity. 

The Prophet Muhammad (peace be upon him) set Nisab values for various types of wealth. These categories include personal, business, agricultural produce, livestock, and discovered treasures.

In Islamic finance, Zakat is the obligation to donate a portion of one's wealth annually to charitable causes. This includes excess wealth such as money, gold, livestock earnings, and profits from investments.

By practicing obligatory sadaqah, Muslims can free themselves from greed and foster societal harmony.

History of Zakat

Zakat, similar to Salat, has its roots in the time of earlier prophets, as the Quran mentions. In Surah Al-Maarij (70:25), it is referred to as a "specified right." This indicates that it has been a tradition among Ibrahim's followers for a long time.

Examples from the Quran stories show that Zakat was practiced by many prophets. These prophets include Ismail, Ishaaq, Yaqub, and Isa. This shows the importance of this charity across different religious periods.

Zakat in the Prophet's Time

Initially, in Makkah, Zakat was voluntarily left to individual discretion. After migration to Madina, it became obligatory. The Prophet Muhammad (peace be upon him) then organized its collection and distribution, establishing clear directives.

The Sunnah, through the Prophet's example and directives, elucidates Quranic commands on compulsory charity, ensuring its practical implementation. It represents the types of obligatory charity assets and recipients, enriching our understanding of this essential Islamic practice.

Principles of Zakat in Islam

The Quran outlines general principles regarding obligatory charity assets, providing specific examples in some instances:

1. Gold & Silver In Islam, it is warned against hoarding gold and silver without spending in the way of Allah. This warning is found in Surah Al-Taubah (9:34).
2. Crops and Fruits: Crops and fruits can be eaten when they are ripe. However, as mentioned in Surah al-An'am (6:141), a portion of the harvest must be given as charity.
3. Earnings From Trade: Believers are encouraged to share their good earnings, as directed in Surah Al-Baqarah (2:267).
4. Wealth Sourced From Beneath the Earth: Surah Al-Baqarah (2:267) reminds us to be grateful for the blessings provided, including resources extracted from beneath the earth.

This obligatory charity also has great significance in hadith. According to a Hadith about Zakat, this act of giving alms plays a crucial role in fostering compassion, social justice, and solidarity among believers. 

How Many Types of Zakat in Islam?

Here are the two types of Zakat in Islam:

1. Zakat al-Mal

Zakat al-Mal is a form of charity in Islam where individuals give a portion of their wealth to help those in need. It's mandatory for Muslims who have a certain amount of savings or assets. 

This charity helps to purify their wealth and supports the less fortunate in society. By giving Zakat al-Mal, Muslims fulfill their religious duty and contribute to the welfare of their community.

Five essential Zakat rules to grasp:

1. Every Muslim must annually pay essential charity on their wealth. Eligibility criteria, including being debt-free, apply.
2. The amount of Zakat is 2.5% of the surplus wealth owned for a lunar year.
3. Those paying Zakat must possess the nisab for a lunar year before payment.
4. Zakat must be promptly paid when due, one lunar year from possessing the nisab.
5. Eligibility to receive Zakat is reserved for those meeting specific criteria.

2. Zakat al-Fitr 

Zakat al-Fitr is a special type of charity given during the month of Ramadan, the holy month of fasting in Islam. It's a small amount of food or money that every Muslim who can afford it must donate before Eid al-Fitr, the festival marking the end of Ramadan.

It helps ensure that everyone, including the poor and needy, can enjoy the celebration of Eid with enough food and provisions. 

Fitrana applies to every household member, regardless of age or status. It's a way for Muslims to express gratitude to Allah for the blessings received during Ramadan and to share those blessings with others in the community.

Three essential Fitrah rules:

• Fitrana is paid annually during Ramadan before Eid.
• It's necessary for every household member.
• Fitrana amounts to the cost of one meal and must reach the needy before Eid prayer.

Masarif-e-Zakat

The Holy Qur’an, specifically Chapter at-Tawbah, verse 60, explains Masarif-e-Zakat. This verse outlines who qualifies to receive obligatory charity.

The following are the eight distinct categories of individuals who can take zakat:

1. Fakir: Individuals with minimal or no income or assets.
2. Miskin: Those who lack basic necessities such as food.
3. Amil: Designated individuals responsible for collecting and distributing Zakat.
4. Riqab: People held against their will, either as captives or slaves.
5. Gharmin: Individuals burdened by overwhelming debts.
6. Fisabilillah: Those engaged in the struggle for Allah's cause.
7. Ibnus Sabil: Travelers facing hardship or stranded in need of assistance.
8. Muallaf: Individuals who recently embraced Islam or require support within the Muslim community.

How to Calculate Zakat?

Breaking down your assets into various categories simplifies the mandatory charity calculation process. This includes assets like gold, silver, cash, savings, and business assets, along with debts and other outgoings.

Determining your charity obligation involves calculating the value of your net assets and comparing them to the Zakat Nisab threshold. If your net assets meet or exceed this threshold, it becomes obligatory upon you.

If someone already has Nisab for a specific type of property and gains more of the same during the Zakat year, they must pay this farz charity on the total amount by the year's end.

Let's explore more about the Zakat on various assets:

• Zakat on Cash: Zakat is obligatory on cash if it reaches the prescribed threshold (Nisab) and remains in one's possession for a lunar year. Typically calculated at 2.5%, it is essential for wealth purification and aiding those in need.
• Zakat on Salary: Zakat is due on the savings from one's salary after deducting living expenses and outstanding debts. It ensures the equitable distribution of wealth and encourages generosity among Muslims.
• Zakat on Gold: Gold is subject to Zakat if its value meets or exceeds the Nisab threshold and is owned for a lunar year. The rate is 2.5% of the gold's value, contributing to economic balance and social welfare.
• Zakat on Property: Property such as real estate, stocks, and investments is subject to Zakat if it meets the Nisab threshold and is held for a lunar year. Zakat is calculated based on the value of the property and contributes to wealth redistribution and community support.
• Zakat on Livestock: It is obligatory for Muslims who own grazing animals such as cattle, sheep, and goats. The calculation typically involves assessing the number of animals owned and the type of livestock. 

Once the value exceeds the Nisab threshold and is held for a lunar year, Zakat becomes due, usually at a rate of 2.5%. 

Annual Zakat Calculations 

During a lunar year, Zakat is applicable to wealth if one year has passed over it. For instance, if someone has Rs. 5,000 cash and receives an additional Rs. 10,000 during the year. It is due a total of Rs. 15,000 at the year's end, without considering separate years for each acquisition.

Consistent Wealth Above Nisab

At the beginning of Ramadan, an individual owns Rs. 4,000, surpassing the Nisab. Despite fluctuations during the year, the amount never drops below Nisab. Hence, zakat is calculated on the wealth possessed during the next Ramadan, which amounts to Rs. 8,000.

Wealth Fluctuations Above Nisab

In another scenario, starting with Rs. 4,000 in Ramadan, the wealth fluctuates but never falls below Nisab. During this year it decreases, then increases to Rs. 7000. Then wealth increases again before decreasing to Rs. 5000.

Zakat year starts from Ramadan each time, even though it changes. It is calculated on the wealth you have during the next Ramadan, totaling Rs. 5,000.

Determining the Zakat at the Start of the Year

In a different situation,Rs. 4,000 is owed in Ramadan, exceeding Nisab. Throughout the year, the wealth fluctuates, which also changes the zakat rate, sometimes dropping below Nisab. It is due when wealth is above Nisab for a full year starting in Safar. It must stay above Nisab until the next Safar. 

It is then due in Safar on the entire amount, which sums up to Rs. 8,000.

Importance of Zakat in Islam

Zakat holds immense significance in Islam, mentioned in the Quran at thirty-two places, closely linked with prayer. The companions of the Holy Prophet (peace be upon him) understood its fundamental role in Islam.

After the Prophet's demise, Abu Bakr (RA), the first Caliph, played a major role in reviving its importance. He declared readiness to combat those who separate prayer from obligatory grant, showcasing his faith-based commitment.

This profound verse highlights the essence of charity in Islam. It's a timely reminder of the importance of Zakat, especially in today's world.  

Difference between Zakat, Sadaqah, and Waqf

Zakat, Sadaqah, and waqf are all acts of giving in Islam, but they have distinct differences. 

Note: Waqf donations cannot be owned by individuals and are not subject to sale. Their effect lasts for many generations, making sure that society continues to benefit over time.

If you're intrigued by the concept of charitable giving and its long-term impact, dig deeper into our blog about the differences between Zakat and Sadaqah.

What Happens if You Do Not Pay Zakat?

If you don't pay Zakat when you should, there can be serious consequences. We can understand the significance of paying Zakat on time from the following Hadith:

Narrated Abu Huraira:

The above hadith shows how important it is to follow Allah's commandments and pay Zakat on time. Muslims need to make sure they pay Zakat when it's due to fulfill their religious duty and avoid the punishment described in these teachings.

When Can You Delay Paying Zakat?

It's generally considered wrong to delay Zakat payments without a good reason. Muslims should pay Zakat on time, but there are some exceptions to this rule:

• It's generally considered wrong to delay Zakat payments without a good reason. Muslims should pay Zakat on time, but there are some exceptions to this rule:
• If your Zakatable assets aren't available right away.
• If you plan to give Zakat to needy relatives or community members soon.
• If you're still figuring out who needs your Zakat and will decide soon.
• If a Zakat authority delays collection due to a valid reason, like a disaster or economic crisis.

For example, during Umar ibn Al-Khattab's rule, the Zakat collection was postponed due to famine and collected for two years later when the situation improved.

• If you've already paid Zakat in advance.

Benefits of Zakat

You can attain the following benefits of obligatory donations in Islam:

• Fulfills the Five Pillars
  Zakat is an essential act of worship and devotion for Muslims. By fulfilling this obligation, individuals strengthen their faith and demonstrate their commitment to Islamic principles. 
• Increases Closeness to Allah and Imaan
  Paying necessary charity draws believers closer to Allah, serving as a means of achieving spiritual closeness.
• Purifies Wealth
  It purifies wealth according to Islamic teachings, cleansing it of negative influences.
• Ensures Redistribution of Wealth
  It helps share the wealth among Muslims as directed by Allah, promoting unity and equality within the Islamic community.
• Relieves Suffering and Strengthens the Muslim Community
  By giving compulsory charity, individuals contribute to relieving suffering and strengthening the muslim community worldwide, transforming lives and providing essential support.

Zakat Facts

Eligible assets for mandatory charity are:

• Cash held at home, in a bank, or in savings accounts.
• Savings earmarked for special occasions like Hajj, property deposits, or weddings.
• The value of gold and silver owned.
• Stocks and shares in possession.
• Income from renting out owned property.
• Debt owed that is expected to be repaid.

Ineligible considerations for mandatory alms are:

• Payments are due in the same month as Zakat payment.
• Debts like mortgage, rent, credit card payments, and personal loans.
• Exclusions: household appliances, clothing, business expenses, loans, and overdrafts.

Key Principles of Zakat

Here are the important principles of obligatory charity:

• Zakat is obligatory for those who hold wealth for a full lunar year.
• It's a right of the poor as ordained by Allah.
• It aims to empower the poor and ensure equity alongside the wealthy.
• It's the second pillar of Islam after the five daily prayers.
• Calculations must adhere to specified guidelines, not individual discretion.
• Priority should be given to local communities for charitable giving.

Criteria for Zakat Payment

Following are the specific criteria for Zakat payment:

• Individuals must be muslim, mentally sound, adult, and free from servitude.
• Possession of a minimum amount of surplus wealth, distinct from personal necessities like clothing and shelter.
• The minimum wealth must be held for a complete lunar year (hawl) before Zakat becomes obligatory.
• Assets eligible for mandatory charity include those capable of generating profit, such as business inventory, gold, silver, or livestock.
• The minimum wealth (Nisab) should not be encumbered by debts; it must be entirely owned by the individual.

In conclusion, Zakat stands as a fundamental pillar of Islam, embodying the principles of compassion, generosity, and social justice. By fulfilling this obligatory charity, Muslims not only purify their wealth but also contribute to the welfare of society.

The impact of Zakat extends beyond financial support, as it helps reduce poverty, encourages wealth distribution, and promotes social harmony. Through Zakat, communities are strengthened, and a more equitable society is cultivated.

How Is Pakistan Sweet Home Making a Difference? 

At Pakistan Sweet Home, we're dedicated to supporting orphaned children by providing them with essential resources, education, and care. As we are a trusted organization committed to ensuring that every Zakat contribution directly supports orphans. We prioritize transparency and accountability, ensuring that your donation goes where it's needed most.

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