How to Determine Zakat on Business Earnings?

When calculating Zakat for business, all liquid assets are considered liable. 

These include:

• Cash (available funds in hand or bank accounts)
• Finished goods (products ready for sale)
• Work in progress (partially completed products)
• Raw materials (items used in production)
• Accounts receivable (money owed to business that is likely to be received)

Calculating the Zakat Amount for Business

Zakat is based on the wholesale price of inventory or goods for sale. This refers to the price you would charge if someone bought stock in bulk. Paying Zakat on the retail price is optional but considered an act of Ihsan (excellence), as it increases the benefit for others.

Once you have determined total business assets, you must deduct liabilities that are due within the next lunar year. 

These include:

• Outstanding rent, utility bills, and salaries
• Short-term commercial loans
• The next year’s non-interest portion of long-term business debt
• Goods purchased on credit

Zakat for Business Calculation Formula 

1. Business Assets = Cash + Inventory Value + Work in Progress + Raw Materials + Accounts Receivable
2. Business Liabilities = Outstanding expenses + Short-term loans + Next year’s due portion of long-term debt + Credit purchases
3. Zakatable Amount = Business Assets - Business Liabilities
4. Zakat Due = Zakatable Amount × 2.5%

By following this method, you ensure accurate Zakat calculations, fulfilling obligations while maintaining fairness in business finances.

And Allah knows best!