From Wages to Worship: An Overview of Zakat on Salary

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Observing the fundamental principles of Islam, including Zakat, is a cornerstone of our faith.

Yet, one common query often confuses individuals: how to calculate Zakat on salary? Understanding the Nisab of Zakat on salary simplifies the calculation despite the process seeming troublesome.

Here is the breakdown of steps to calculate Zakat on your salary:

1. Determine Your Annual Income: First of all, assess your total annual salary. This includes all sources of income, such as wages, bonuses, and commissions.

2. Subtract Essential Expenses: Deduct essential expenses from your annual income, such as rent, utilities, groceries, and other necessities. These are expenses required for basic living and survival.

3. Calculate Your Savings: After subtracting essential expenses from your annual income, calculate the amount of money you have saved from your salary throughout the year.

4. Assess Your Zakatable Assets: Identify any amount of Zakatable assets you may possess, such as cash savings, investments, or valuable possessions. These assets are subject to Zakat if they exceed the Nisab threshold.

5. Determine the Zakat Nisab: The Zakat Nisab on salary follows the same standard as for other forms of wealth, which is the equivalent of 87.48 grams (7.5 tola) of gold or 612.36 grams (52.5 tola) of silver.

6. Calculate Zakat Due: Once you have determined your Zakatable assets and confirmed that they exceed the Nisab threshold, calculate the Zakat due. The percentage of zakat on salary is 2.5% of your total Zakatable assets.

Formula of Zakat on Salary

The formula to calculate Zakat on Salary is as follows:

Zakat Amount = (Annual Salary + Total Savings + Other Assets) - (Liabilities + Expenses) × 2.5%

This formula considers your annual salary along with any additional savings and assets, subtracts any liabilities and expenses, and then applies the Zakat rate of 2.5% to the resulting net worth.

Example of Zakat on Salary

Let's understand the calculation of zakat on salary through the following example:

Annual Salary: PKR 600,000
Total Savings: PKR 200,000
Other Assets: PKR 100,000
Liabilities: PKR 50,000
Expenses: PKR 30,000

Using the formula for Zakat on Salary:

Zakat Amount = (600,000 + 200,000 + 100,000) - (50,000 + 30,000) × 2.5%
= (900,000) - (80,000) × 0.025
= 820,000 × 0.025
= PKR 20,500

So, the Zakat you needed to pay on the salary and savings would be PKR 20,500.

Zakat Scenarios for Salary Earners

Salary refers to the monthly income earned by an employee, and it falls in the category of zakatable wealth. One requirement for paying zakat on salaries and other funds is that the owner hold the funds for a full year.

Most salary earners can be categorized as follows:

Spending all Salary

Workers who spend their entire salary and do not save any money are not required to pay Zakat. Since they haven't saved anything, Zakat is not obligatory for them. Zakat is only required on wealth held for one lunar year, which doesn't apply to their situation.

Saving Part of the Salary

Workers who save a portion of their salary fall into two categories:

a) Those who save enough to meet or exceed the Nisab by the end of the lunar year must pay Zakat on their savings.

For example, if someone earns 5 million Rupees monthly and saves 1 million Rupees per month, accumulating 12 million Rupees in savings by the year's end, they would pay Zakat on the entire 12 million Rupees.

b) Those whose savings do not meet the Nisab by the end of the lunar year are not obligated to pay Zakat.

For instance, if someone earns 5 million Rupees monthly and saves 50,000 Rupees monthly, accruing 600,000 Rupees in savings by the end of the year, they are not required to pay Zakat.

Investing Part of the Salary

Workers who invest a portion of their salary are not saving it but rather utilizing it by investing in permissible (halal) investment opportunities. If the return on investment meets the Zakat nisab of 2.5%, then Zakat is due on the gains.

Different Schools of Thought About Earned Income

The four main schools of Islamic Law have different rules for when a year passes for Zakat on earned income. However, they disagree on the reasons and have complicated rules for this, making it hard to follow.

Since the scholars didn't address salary and wages specifically, it's even more challenging for us today. Despite this, their differences show there's no clear agreement on when a year passes for earned income.

Hanbali scholars say Zakat on earned income should be paid immediately, comparing it to Zakat on rent, which is due right away.

According to Abu Hanifah, a year must pass on earned income that reaches the Nisab threshold unless it's added to similar assets already owned, reaching the Nisab.

Malik's position requires a year to pass on the asset for Zakat to be due, even if the owner already has a similar asset (except for livestock that reaches its Nisab).

Al-Shafi'i's position is stricter regarding livestock but also requires a year to pass on earned income.

In summary, the obligation for Zakat on salary depends on the savings or investments maintained throughout a lunar year. It's important that the total amount saved or invested reaches the Nisab, not just the monthly earnings.

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Frequently Asked Questions

Is Zakat due on salary?

Yes, zakat is due on salary. Allah Subhan Ta’ala said in the Quran:

“O you who believe! Spend charitably from the wholesome things you have earned and from all We have brought forth for you from the earth.”

(Surat Al-Baqarah, 2:267)

Your earnings can include profits from selling things, raising animals, or selling crops. Zakat on income becomes due when you combine it with other similar holdings at the end of the Zakat year. Here, we're focusing on Zakat on salaries and wages.

Can I pay my Zakat on earned income at the end of my fiscal Zakat year?

Yes, Zakat is due on your net income. This is calculated by deducting your essential expenses and debts from your total earnings. Essential needs like food, housing, and healthcare are deductible. Immediate debts such as mortgage or car payments also qualify.

If you pay Zakat yearly, include additional income gained, like from selling property or inheritance, in your total earnings. Zakat is then calculated based on your net income and funds at the time of payment, regardless of when received.

Is Zakat applicable to salary accounts?

To qualify for Zakat, you must possess wealth exceeding the nisab threshold for a complete year. If your entire salary is spent on daily expenses, leaving no wealth remaining, you are not eligible to pay Zakat.

Is Zakat due on savings?

Yes, Zakat is due on savings if they meet the Nisab threshold and have been in your possession for a full lunar year. If your savings surpass the Nisab threshold, Zakat becomes obligatory for you to pay.

WRITTEN BY

Ali Raza (Zakat and Sadaqah Regulations)

Ali Raza holds a Master of Arts in Islamic Studies and is an expert in Islamic theology and jurisprudence. Specializing in Zakat, Sadaqah, and other Islamic donations, Ali's writings provide valuable insights into the religious and ethical aspects of charity. His work for Pakistan Sweet Homes aims to educate and inspire readers to support orphan care and charitable initiatives, making him a key contributor to the organization's mission.