Zakat-ul-Mal

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What is Zakat?

Zakat does not refer to charitable giving out of kindness or generosity, but to the systematic giving of 2.5% of one’s Zakatable wealth each year to benefit those who are financially less advantaged. This rate applies to cash, gold, silver, and commercial assets. By giving this small portion of one’s wealth, Muslims purify their wealth and please the Creator. Zakat is the third of five pillars of Islam, which means it is an essential act of worship that Muslims must fulfill. 

Table of Contents
Linguistically, Zakat has two meanings: purification and growth. Technically, it means to purify one's possession of wealth by distributing a prescribed amount to the poor, the indigent, the slaves or captives, and the wayfarer.

How important is Zakat in Islam?

Zakat is one of the five pillars of Islam. It has been mentioned, along with daily Prayers, over seventy times in the Qur’an. Allah’s word commanding “…..and establish regular Salaat and give regular Zakat…..” are referred to in many parts of the Quran.

From this, we can conclude that after Salaat, Zakat is the most important act in Islam. Just as Salaat is the most important act of worship, which has to be performed bodily, so is Zakat the main act of worship which has to be performed monetarily. Those who fulfill this duty have been promised abundant reward in this world and hereafter. Whoever evades Zakat has been sternly warned in the Qur’an and Hadith of the consequences.

Allah the Almighty says in the Quran: “The parable of those who spend their wealth in the way of Allah is that of a grain of corn. It grows seven ears and each ear has hundred grains. Allah increases manifold to whom He pleases.” (Quran 2:261). It is stated in the Hadith that, by giving Zakat, the following benefits are derived:

  • Gain the pleasure of Allah.
  • Increase in wealth and protection from losses.
  • Allah’s forgiveness and blessings.
  • Protection from the wrath of Allah and from a bad death.
  • A shelter on the Day of Judgment;
  • Security from seventy misfortunes.

What types of my wealth should I give Zakat on?

  • Gold and silver, in any form.
  • Cash, bank notes, stocks, bonds, etc.
  • Merchandise for business, equal to the value of Nisaab.
  • On income derived from rental business.

What types of my wealth should I give Zakat on?

  • On any metals other than gold or silver.
  • Fixtures and fittings of a shop, car, trucks or any delivery vehicle etc., which is used in running business.
  • Diamonds, pearls, other precious or semi-precious stones which are for personal use.
  • There is no Zakat on personal residence, household furniture, pots and pan, personal clothing, whether they are in use or not.
  • There is no Zakat on a person whose liabilities exceed or equal his assets. (Home Mortgage in this country is not to be counted as personal liability for the Zakat purpose).

Who pays Zakat?

All Muslims who meet the financial threshold of Zakat, as indicated in Nisab, are required to give a portion of their wealth annually—to help those in need.

Who deserves Zakat?

The recipients of Zakat, according to Qur’an are as follows:

  • The poor (Fuqaraa’) who do not have enough income to cover basic needs.
  • The needy (Masaakeen) whose basic needs are met but their income does not take care of other important needs.
  • Those whose sole job is to collect and distribute the Zakaat funds.
  • Those who are close to accepting Islaam and non-Muslims whose evil can be avoided if they receive money.
  • For freeing a Muslim person from bondage (whether a slave in the old times, or a prisoner of war in our times).
  • For those who are indebted and cannot pay their debts.
  • In the cause of Allah: the scholars have said that what is meant here is that Zakaat can be given to those who volunteer to fight in the cause of Allah and do not receive a fixed salary from the government.
  • For the wayfarer who is stranded in a foreign land and cannot get enough money to go back to his homeland, even if he is wealthy in his homeland. He should be given enough money to allow him to return to his homeland.

Who does not qualify for zakat?

Zakat cannot be given to:

  • The descendants of Muhammad (peace be upon him)
  • To parents and grandparents. In the same manner one’s children and grandchildren cannot be given Zakat.
  • A husband and wife cannot give Zakat to each other.

What happens to someone who refuses to give the Zakat of his wealth?

Allah says in the Quran: “And there are those who hoard gold and silver and do not spend it in the way of Allah, announce to them a most grievous penalty (when) on the Day of Judgment heat will be produced out of that wealth in the fire of Hell. Then with it they will be branded on their forehead and their flanks and backs. (It will be said to them) This is the treasure which you hoarded for yourselves, taste then the treasure that you have been hoarding.” (Al-Quran 9:34-35)

When is Zakat Due?

Zakat is due after one Lunar (Hijri) year starting from either the first day you acquired the amount of Nisab or the day you paid your Zakat the previous year. Most Muslims give their Zakat during Ramadan when Allah magnifies the rewards of good deeds. 

Zakat becomes a religious obligation upon a Muslim after a period of one lunar year passing while he or she owns the Nisab. And if you always possess the minimum Nisab value, then Zakat is due once every lunar year at a date of your choosing.

What is ‘Nisab’?

Nisab is a minimum amount of wealth you must own for a full Lunar year to be liable to pay Zakat.

How much is the nisab (threshold) for Zakatul-Mal?

On your Zakah due date, you need to find out the retail price of gold. Eighty-five (85) grams is the threshold, or the nisab — the limit after which Zakat must be paid. For instance, if the price of one gram of gold is $20, then the nisab is 85 x 20 = $1700.

If I don’t keep track of whether or not I own Nisab for an entire year, what should I do?

Since most Muslims in the USA own at least the value of Nisab, you don’t have to keep track of when you acquired this amount. Also, since you are encouraged to give in charity more than the minimum obligatory Zakat, you should assume that you have always owned the Nisab value. Therefore, to simplify matters, choose a specific date of the lunar calendar every year, such as the 25th of Ramadan, calculate the total value of your Zakatable wealth on that date, and give 2.5% of it or the rate that applies to the type of wealth you own.

Do I have to possess the amount of Zakatable wealth for a complete Lunar year before I have to pay Zakat on it?

No. You must only possess the value of Nisab for the whole year. Therefore, as long as you have a minimum amount of Nisab for the year, you assess your Zakatable wealth on your Zakat due date, regardless of when you acquired this wealth or part of it. 

What is the difference between Zakat and Sadaqah?

In the language of the Quran, Zakat and Sadaqah are similar. But in practice, Sadaqah is the term used to indicate voluntary charitable giving to both Muslims and non-Muslims in any amount. Zakat, on the other hand, is mandatory, with a fixed minimum rate, usually given to Muslims in need.

Is it permissible to pay Zakah to the Islamic centers so as to help provide expanses necessary for the continuity or enlargement of the Islamic mission, even if there have been no debts on those centers?

It seems to me that it is allowed to pay Zakah to the Islamic centers that are in need for that, whether to help running them or paying their debts, but if Allah makes them free of want out of His grace; by means of having an income from their endowments enough for their needs or they become under the supervision and charge of one of the governments or any other bodies, they do not have the right in this case to wrongly take the money of the poor, because alms are not entitled for the strong and rich

Is money spent on Quran and other Islamic literature for distribution for dawah can be considered to be zakatable?

فَرِيضَةً مِّنَ اللَّهِ وَاللَّهُ عَلِيمٌ حَكِيمٌ”

“Charity (here, meaning zakat) is only for the poor, and the needy, and those employed to collect (the funds), and to attract the hearts of those who have been inclined (towards Islam), and to free the captives, and for those in debt, and for Allah’s cause (such as those fighting in the way of Allah), and for the wayfarer (a traveler who is cut off from everything); a duty imposed by Allah, and Allah is All-Knower, All-Wise.” (at-Tawbah 9:60)

The seventh type is “in the cause of Allah”, and the classical interpretation of this is that they are the fighters who are unpaid as part of an organized army unit. Many contemporary scholars argue that this would now include all means of dawah. Some, such as Ibn Jibreen and Yusuf al-Qaradawi, go as far as allowing the building of masjids from the zakat money if there are not sufficient funds for this cause. The scholars agree that it is acceptable to give it to students of knowledge, to enable them to finish their pursuit of Islamic knowledge.

It would be safer to spend on dawah from sources other than zakat. If there is shortage in the dawah funds that can’t be remedied by other than taking money from zakat for it, then it is permissible to do that, particularly that most of the struggle in our times is intellectual. Allah considered the intellectual struggle part of jihad where He said in reference to the Quran, 

فلا تطع الكافرين وجاهدهم به جهادًا كبيرًا”

“So do not obey the disbelievers and strive against them with the Qur’an a great striving.” [Sahih International, 25:52]

It must be said, however, that the most deserving recipients are the poor. It is never acceptable to undermine their right to most of the zakat money.

Should I pay Zakat on my jewelry?

The opinion of the majority is that gold jewelry used by women is not zakatable. It is also important to know that the nisab applies to 24 karat gold. You need to factor that in because you may still have less than nisab if the gold you own is not 24 karat. 

If you decided to take the position of the Hanafi madh-hab obliging zakat on gold jewelry, that would be commendable and safer. In this case, if you were found to have had more than the nisab, you will need to pay the zakat for all of the previous years where you had more than the nisab.

What is Zakatable wealth?​

Zakatable wealth is what you own, whether in your possession or with others, except for the properties and belongings you use, such as your house, car, clothes, and business equipment. Also, Zakatable wealth is what remains with you after meeting the needs and expenses of yourself and your family. It is not based on the income you make during the year. Instead, it is based on what remains with you after you take care of your family’s expenses. This wealth can be in the form of cash, gold, stocks, business commodities, or other wealth.

Are 401K/ Pension Plan and 529 plan are zakatable? Generally, 401K/ pension plan cannot be cashed until I leave the bank.

The zakat is paid annually on the total amount of funds, but here is how you calculate it:

Since zakat is only mandatory on assets you have complete ownership and possession on, you estimate the amount of money you will walk away with if you withdraw it from the fund now.

And since this money is invested in stocks, you will be like one owning a share in a company. What you need to find out is how much of the companies value is made out of zakatable assets, which are in the case of most companies, the cash surplus, as well as the products prepared for sale. You will need to pay zakat on that portion only.
Some approximation will be needed if certainty cannot be reached. The rule here is that whenever certainty is not attainable, action is based on the higher probability.

Zakat on Mortgage: I got a house this year and have a mortgage of 30 years ...How do I calculate my annual zakat with respect to mortgage I owe?

You will subtract your annual dues from your total assets. (Your annual dues is the sum of the payments due on you for the entire year)

Can someone pay Zakat outside the country they live (for example—lives in Egypt and pay zakat in Syria?) especially when the people in the other country will be more in need?

The default ruling on this is that one must fulfill the local needs first. However, it is permissible to send the zakat away to another country for legitimate indications, such as the dire need in that country or the presence of relatives there, etc.

Is it possible for me to accept zakat money from someone else to pay off my debt that I owe?

Scenario: I am unemployed divorced woman with gold jewelry worth 600 dollars zakat amount. I am in debt 5000 dollars. I don’t want to sell my jewelry to pay the debt. My father and brothers are not providing for me nor do I have a son. Also do I even owe zakat money on the jewelry and can I use that same zakat money to pay off some of the debt. What do I do?

Gold that you have for your own use is not zakatable according to the majority. You may collect zakat money if your income falls short of your basic needs, without extravagance or excessiveness.

Can I pay my Zakat to help an Islamic School?

According to the Fiqh Council of the Muslim World League; the category في سبيل الله or (for the cause of Allah) could include supporting any civilian Islamic work as needed. I am in agreement with this approach.

In the US and in the west in general, Muslims are desperately in need for fund to establish their Masajid, Islamic schools, and other social and political organizations, as they do not receive any federal or state funds for this purpose.

With this in mind, paying Zakah to support Islamic schools is allowed if the potential beneficiary is in need.

Do I have to pay Zakat on a rental property?

The strongest view concerning this issue is that the money received from the rent will be added to the individual’s wealth. If a person has wealth in excess of the nisaab (legal minimum) and he possesses it for an entire year, he must then pay zakat on that wealth. If, for example, he uses that money to support himself and the money does not stay with him for a year’s duration, there is no zakat on that wealth.

Can our zakat donation be considered a charitable donation that can be claimed when we file our income taxes in the United States?

We are able to claim all charitable donations.

You can pay your Zakah to any of the Islamic organizations who have 501(C) 3 status with the IRS, meaning; non-Profit organization.

These organizations are eligible Zakah recipients and Tax exempted at the same time. So, when paying to such organizations, you fulfill your Zakah duty and your payment is Tax deductible.

Zakat on Stock Options

The sale nature of buying these so called “stocks” is not clear for 4 reasons:

  1. Offering these stocks is a part of the employees’ non-cash compensation.
  2. They are offered for a very symbolic and nominal price.
  3. They do not represent a real asset, commodity, service, or even a share in the company.
  4. Employees’ ownership of these stocks is very restricted, as you indicated in your question.

However, the above does not mean that if you did not buy these stocks they are not subject to Zakah; they are, simply because they are a kind of wealth or asset you have, regardless of the way you owned them.

Exploring Scenarios on Zakat

I was working in a startup company and was offered 20 thousand stock options. I bought 10 thousand at a price of 1 dollar per option. After two years the valuation of the company increased and the option price became 3 dollars. Those options can not be sold as they are not real stocks. Then, the company was acquired and the value of my 10 thousand options became 100 thousand dollars in stocks. I can only sell those stocks after a waiting period of 6 months. I have the following questions:
  1. Do I owe any Zakat for the two years the company was private and option price increased? how much? 
  2. How do I calculate the zakat for the stocks I have now? 
  3. Do I calculate the zakat from the time of acquisition or after the waiting period or what?

Since you do speculate in these stocks, you keep them in your possession for a long period of time; the Zakah is not due on the market value of these stocks, but only on the profit/revenue those stocks make for you (if there is any). The Zakah is due on an annual basis since the time you bought them.

To compute the due Zakah, you need to add the profit you gained from them to the money pool you have (cash in hand, money in checking account, other monetary assets, etc) and pay 2.5% as a Zakah rate.

In case of not having any profit (which is possible due to the fact that these are not real stocks), or otherwise, not having any access to them or being unable to sell them, then their market value is not subject to Zakah until you sell them and got the money, or at least when you are able to sell them. From that time on, you need to pay Zakah on them on an annual basis accordingly.

For example, if I have 5000 dollars, and after passing of one islamic year, I have 8000 dollars, do I need to pay 2.5% on 5000 or on 8000? Do I also need to pay zakah again on the same amount the next year?

Zakah is due annually on the wealth you have in your possession by the Zakah due date, and regardless of what you had before that date.  So, in your example, you should pay Zakah on the 8K and not only on the 5K, even if the extra 3K did not stay in your possession for one complete lunar year.  In the Zakah due date of the next year, you should pay your Zakah again on all what you have in your possession, even if all or part of what you have was charged Zakah last year.

Do we have to pay zakat on money that we give as loan to the masjid?

You do not have to pay Zakah on what you lend to others till you actually get your money back. However, paying Zakah on the lent money is preferred, especially when paying off the loan is guaranteed.

I work for a university. 7% of my salary goes into a TIAA-CREF retirement account and is matched by my employer. how do I pay zakat on such money? I can't take the money out until I retire.

In the Zakah due date, you should calculate your Zakah on this account and on any other pension or retirement account, like 401 K or so based on the following formula:

The withdrawable amount minus any prescribed tax minus any prescribed penalty = the Zakatable amount X 2.5%

What is the Zakat on Traded Goods?

The basis for the Zakah due on traded goods is for the merchant to estimate the value of the goods he has based on the wholesale price, and add to that any collectable debts [what others owe him and he expects to collect from them], then deduct from that his debts, and then pay the Zakah on what is left.  The debt is collectable if the debtor is expected to pay and can afford it, but if he is bankrupt or denies the debt, then Zakah is due on it only upon collection.  And Allaah, the Most High, knows best.

Zakat money for the construction of a Masjid?

The Fiqh Council of the Muslim World League issued a Fatwa on 1405 AH annual convention that the category في سبيل الله  or ( For the cause of Allah ) could include any Islamic work, especially when there is a desperate need for it.

In the US and in the west in general, the Islamic work is sponsored by the Muslim community only and not by any governmental grants or any financial support in many cases. Consequently, building and maintaining Masajid is a legitimate Zakah recipient according to this approach.

Is there zakat on the gold that a woman keeps (but not for trading purposes), if a year has passed?

Zakat must be paid on gold and silver which are kept for trading purposes and that verdict is uncontestable. If they are for acquisition, to help in times of difficulty, and not for adornment, then it is also incontestable that zakat must also be paid on them. If they are kept for the purpose of adornment, however, there is a difference of agreement amongst the people of knowledge: the majority hold that it is not obligatory to pay zakat on it and that this is like the garment a woman wears, the vehicle she rides and the house in which she lives, for there is no zakat on any of that by consensus. Abu Hanifah (may Allah have mercy on him) held that it is obligatory to pay zakat on adornment if it has reached the threshold (nisab) and an Islamic lunar year (hawl) has passed on it. Among the evidence of the Hanafis for that is the general proofs for the obligation of zakat on gold and silver, on one hand, and the textual evidence related specifically on adornment, on the other hand. We mention from among these:

The hadith of Amr ibn Shuaib, on the authority of his father, through his grandfather, “A woman came to Allah’s Messenger (saws) and she had with her a daughter of hers. On her daughter’s wrist were two thick bangles of gold. He asked her, ‘Do you pay zakat on that?’ She replied, ‘No.’ He said, ‘Would it please you for Allah to make you wear two bangles of fire on the Day of Resurrection?'” He [the narrator] said, “So she took them off and threw them to the Prophet (saws) and said, ‘They are for Allah, (Azza wa Jall), and His Messenger.'”

The hadith related by Abu Dawud that Muhammad ibn `Eisa said that `Eitab (meaning Ibn Bashir), said on the authority of Thabit ibn `Ajlan, on the authority of `Ata’, from Umm Salamah, who said, “I was wearing gold anklets, so I asked, ‘O Messenger of Allah, are these a treasure?’ And he replied, ‘Whatever has reached the threshold for you to give zakat on it and its zakat has been given, it is not a treasure.'”

The hadith also related by Abu Dawud that Muhammad ibn Idris al-Razi said that `Amr ibn al-Rabi`a ibn Tariq said that Yahya ibn Ayoub on the authority of Ubaid-Allah ibn Abi Ja`far that Muhammad ibn `Amr ibn `Ata’ told him on the authority of `Abd-Allah ibn Shaddad ibn al-Had that he said, “We entered in upon Aishah, the wife of the Prophet (saws) and she said, ‘Allah’s Messenger came in and saw in my hand big rings of silver, so he asked me, ‘What is that, Aishah?’ So I said, ‘I made them to decorate myself for you, oh Messenger of Allah!” He asked, “Do you pay their zakat?” I answered, “No or ‘ma sha’ Allah‘.” He said, “This is enough of the fire for you!”

As such, whoever pays his zakat as a way of remaining on the safe side and avoiding scholarly differences has done well. We ask Allah to grant success and acceptance to us and to her.

What should I do when my Zakat is Past Due?

Scenario: I didn’t know I had to pay zakat on trade and now I learn I have to pay the missed years of zakat that didn’t get paid. How do I deal with this issue if I don’t remember at all how much I have to pay? Secondly, I’m in debt from that business.

You need to estimate how much Zakah was due for the years since you started your business.

Only the part of your debt that is actually due (and not the whole debt) should be deducted from your payment of Zakah for this year.

As for the whole amount you owe Allah (swt), it must be paid in full. However, it does not have to be paid immediately if you cannot afford it. You could make arrangements to pay it on a monthly basis, based on your financial ability, until you make sure that the full amount has been paid.

Until that time, you should write this amount in your will because, in the event that you die, this amount would have to be deducted from your inheritance before it could be distributed amongst your legal heirs.

Zakat on Land: I have a portion of land .No construction is made yet, should I pay zakat on this land?

If you are keeping this land for personal use (i. e. to build your family house on it) then there is no Zaka on it. But , if you are keeping it for investment (i. e. to sell it and make money when the price goes up) then you need to pay the Zakah. The Zakah will be 2.5% of the value of the land upon the time when Zakah is due.

Zakat on Bank Deposits: I do not work and I earn my living from the profits of bank investment certificates. I have read that the Zakat in this case is 10% of the profits, is that true?

It must be warned, first, that the investment certificates issued by usury banks are part of prohibited transactions, and it must not be dealt with by any Muslim who endeavors to abide by his religion’s principles, and whoever has dealt with any of them, the ruling necessitates on him to restore his capital money back, and gets rid of the remaining sum(s) by donating it to public charities, ad he must repent to Allah of doing that.

As for stock exchanges issued by Islamic banks, their Zakat must be paid as the same as on trade tenders, which is one quarter of one tenth, and not the one full tenth, as maintained by the most correct rulings of people of knowledge.

If I have a grocery store, what Zakat do I have to pay on it?

You do not have to pay Zakat on your equipment, such as refrigerators, cashier machines, and other useable equipment and tools. Even if you own the store property, you do not have to pay Zakat on it. However, you must pay Zakat on the wholesale price of all inventories and on other Zakatable assets mentioned in the worksheet.

How does the MCK distribute Zakat?

The MCK distributes Zakat to vulnerable neighbors in the Greater Knoxville area to fulfill their essential needs.

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