Guide to Zakah – Understanding & Calculation

[By Dr. Muhammad Imran Ashraf Usmani & Bilal Ahmad Qazi]

Allah Ta’ala Commands His servants:

Establish regular prayer and give Zakah (Al-Qur’an 73:20)

What is Zakah? 

Lexically, the word Zakah covers two meanings. 

1. Purification 
2. Growth and increase 

In the terminology of the Qur’an and Sunnah, Zakah is the portion of asset that is made mandatory to be spent in the ways specified by Allah Ta’ala. 

Benefits of Zakah 

Zakah has two straightforward benefits.

Firstly, the payer himself gets purified from inner germs of the spiritual diseases.

Secondly, Zakah helps those who are not able to fulfill their needs independently. For e.g. orphans, widows, handicaps, poor people etc.  

Allah Ta’ala says in Surah Taubah:  

 Take sadaqah (obligatory alms) out of their wealth through which you may cleanse and purify them, and pray for them. Indeed, your prayer is a source of peace for them. And Allah is All-Hearing, All- Knowing. [At-Taubah 9:103]
 
This verse has explicitly mentioned the first benefit i.e. purification of inner self. The second benefit is not mentioned in this verse. It points to the fact that the real purpose and objective of paying Zakah is the purification of one’s own self, though the second benefit exists in its inference. (Ma’ariful Qur’an)  

Retribution for not giving Zakah 

Allah Ta’ala says in the Qur’an:  َ

As for those who accumulate gold and silver and do not spend it in the way of Allah, give them the ‘good’ news of a painful punishment On the day it (the wealth) will be heated up in the fire of jahannam, then their foreheads and their sides and their backs shall be branded with it: “this is what you had accumulated for yourselves. So, taste what you have been accumulating.”               [At-Tawbah 9:34-35]  

The Holy prophet (sallallaahu alayhi wasallam) said:  Every nation that does not give Zakah, Allah Ta’ala will afflict them with a drought.  

Narrated Abu Hurairah (radhiyallahu anhu): Allah’s Messenger (sallallaahu alayhi wasallam) said: “The person whom Allah has bestowed with wealth, yet does not give its Zakah, on the Day of Judgment, his wealth will be turned into venomous bald serpent with two black spots over the eyes (or two poisonous glands in its mouth) which will wind around his neck and bite his jaws and say: ‘I am your wealth, I am your treasure.’ “Then the Prophet (sallallaahu alayhi wasallam) recited the Holy Verse: “Let not those who covetously withhold….” (to the end of the Verse)._ [Sahih Al-Bukhari Hadith 1315 and 4199]  

Payer of Zakah 

Zakah must be paid by the one who is:
1- Muslim
2- Major (Baligh
3- Sane
4- Sahib-un-nisaab (owner of wealth above the level of nisaab

Above-mentioned four conditions are described respectively in the following lines:

Zakah is not obligatory on a non-Muslim as Zakah is an  ibadah  (an act of pure worship) and a non-Muslim is not obliged to carry out the ibadah of Islam.
(Hashiah Ibn-e-Aabideen pg:  259 vol:2.)

⚫  A person must be major to qualify  as a Zakah payer. Minors are not under a  fard  obligation to perform acts of  ibadah  such as prayers (salaat) and fasting (saum) because they lack legal capacity. They are accordingly exempt from paying Zakah by reason of absence of  legal capacity.
(Badai’us-sanai,  Fatawa  Hashiah  Ibn-e-Aabideen  pg:  258 vol: 2)

⚫  The Zakah payer must  be sane.

In  this regard, two situations  must be distinguished:

      i. The child who at maturity is  insane. In this case, the insane person upon regaining his intellect is exempt from payment of Zakah for the duration of his insanity. Liability for Zakah attaches to him from the time he regains his sanity and accordingly his Zakah year is calculated from such date.

      ii. The person  although sane at the  time of maturity subsequently thereto becomes insane. In this case, if the insanity  lasts for a whole year,  the insane  person  is  exempt from Zakah for this period, and his  Zakah year is  therefore deemed to commence from the date of recovery of sanity. On the other hand, if the insanity remains for a part of the year, then he is liable for the Zakah of that year.
(Badai’us-sanai. Pg: 382, Vol:2)

⚫  Nisaab is described in the following lines.

Definition of Nisaab

Zakah on debts Nisaab  is the threshold or line, which separates those  who are duty bound to give Zakah  from those who are  not. In other words,  Nisaab  is the minimum amount of wealth whose owner is deemed  to be wealthy in the  conception  of Shari’ah and Zakah is obligatory  on him. (Ahkaam e zakaah  pg: 11)
For example, one who owns 87.48 grams of gold or 612.36 grams of silver or its equivalent amount of  cash  or trading assets etc. is called  Sahib-un-nisaab  and it  is obligatory on him to  pay Zakah (i.e. 2.5% of his total zakatable assets) to those who deserve Zakah. A detailed description of those that are eligible  to  receive  Zakah  is described  in the coming topic “Recipient of Zakah

Zakah on Debts

Debts can be classified into two types:

1. Receivables i.e. owed to oneself e.g. Loans given to somebody.

2. Payable to others e.g. Money borrowed from somebody.

Debts receivable from others

There are different types of debt receivables. The ruling of Zakah for each kind of debt receivable is different from the other. It is therefore pertinent to first understand all these types of debts receivable.

Types of Debts Receivable

Imam Abu Hanifah (rahmatullah alayh) has  classified debts into three categories, namely:

1. Trade  Debts
2. Non-Trade  Debts
3. Other Debts

1.  Trade Debts are called  dain  qawiyy in the terminology of Islamic Jurisprudence. These debts  are those that arise in respect of:

(a) Trading stock sold and delivered in the ordinary course of business;
(b) Moneys lent and advanced;
(c) The loan of gold and silver.

For example, a trader sells goods (on credit) to another for  purchase price of Rs.5,000/-; or A lends B Rs. 10,000/-. The ruling for  this class of debts is that the creditor, upon receiving the  amount owing to him, is obliged to pay Zakah for the entire preceding period of credit.

2.  Non-Trade Debts are called  dain mutawassit. These debts  are those that arise in respect of the sale  of goods  other than the  trading stock. For example, the purchase price of the sale of personal clothing, or motor vehicle or land. 

The preferable view, which is one of the two views narrated from Imam Abu Hanifah, in the case of such  debts (as mentioned in Imdadul fatawa pg: 46 vol:2) is that Zakah  is not payable for the preceding years but is  only payable for the Zakah year calculated from the time of repayment of the debt.

3.  Other  debts  are called  dain Zaeef . These debts are those that do not arise from the sale of goods or property. For example, debts receivables in respect of inheritance, dowry, rentals, wages, and provident fund payments.

The ruling for this class of debts is that Zakah is not payable unless full amount is paid and one Zakah year passes thereon after payment. No Zakah is payable for preceding years. (Badai-us-sanai. Pg:392, Vol:2)

Debts payable to others

Zakah payer, in order to be  sahib-un-nisaab,  must  be  free  of  debts.  If  he is indebted to his creditors, then the  amount of his  debts  must be deducted from the total value  of those assets  on which Zakah is levied. The balance remaining will be subject to Zakah. If there is no balance remaining, no Zakah is obligatory. 

Note: It  should  be  kept  in  mind,  that  the ruling mentioned above regarding the treatment of debts payable is related  to the person who is not a corporate businessman. However, if some one has a  corporate business, then the ruling is that, only those debts  are to  be deducted  from zakatable assets  that have been utilized in purchasing fixed assets such as machinery etc. On the other hand, if debts of a corporate businessman are utilized in purchasing zakatable assets such as inventory etc., then  they  will not be deducted  from the  total value of the assets on which Zakah is levied. ( Islam Aur Jadeed Ma’ishat Aur Tijarat by Mufti Muhammad Taqi Usmani Pg: 64)

Recipients of Zakah

The Holy Qur’an has fixed eight categories of recipients in verse 60 of the  Surah Taubah. The verse is as follows:

The Sadaqat (prescribed alms) are (meant) only to be given to the poor, the needy, to those employed to collect them, to those whose hearts are to be won, in  the cause of the slaves and those encumbered with debt, in the way of Allah and to a wayfarer. This is an obligation prescribed  by Allah. Allah is All Knowing, Wise.” (At-Taubah:60)

There is a consensus  amongst the jurists  that the disbursement of Zakah is solely confined to these eight recipients. The Holy Prophet (sallallaahu alayhi wasallam)  was once asked by a Companion to give the latter Zakah. The Holy Prophet (sallallaahu alayhi wasallam replied: 

Allah has not assigned the right to distribute Zakah to any Prophet or any body else. He Himself has ordered about it and has fixed eight categories  (of recipients). If you qualify as being from amongst these, I will give you your right.” (Abu Dawood)

In the following lines, each of these eight categories have been described briefly.

The eight categories of Recipients of Zakah

1, 2) The poors, the needy  (Fuqara and Masakeen) The  Fuqara  and  Masakeen (There is  a  difference  between  faqeer  and  miskeen.  The  description  given in  (a) in  the  following  lines is  the definition of  Miskeen  while (b) and  (c) are  defined as  fuqara.  However, the  difference in the definition of faqeer and Miskeen has no relevance to Zakah, as both faqeer and miskeen are eligible to receive Zakah.)  The description  of  the eight  categories that is  written  in  the following  lines is the  summary of a  very detailed elaboration   of  these  categories described in  Ma’ariful  Qur’an  by  Mufti  Muhammad Shafi’  Usmani (rahimahullah) under verse 60  of  Surah Taubah)  are extremely poor persons. The eligibility of receiving Zakah under  this  category is restricted to either of  the  following three kinds:

a. Those who do not own any property or assets at all, or
b. Those who  do not own any property or assets in excess of basic necessity (For e.g. House, furniture and effects, personal clothing, servant, tools of trade), or c. Those who own property in excess of basic necessity, but the excess is below the value of nisaab.

These three kinds of  people can receive Zakah and they are also not obliged to pay it. However, it  must  be kept  in mind that the above  mentioned three kinds are different from the following two classes:

a.  Those who own, in excess of basic necessity, property or assets on which Zakah is levied (such as  gold, silver, cash, inventory) whose value after deduction of debts, equals or exceeds the value of nisaab. They are obliged to pay Zakah, and cannot receive it.

b. Those who own, in excess of basic necessity, property or assets on which Zakah is not levied (such as diamonds, land which is not purchased for trade, etc) which equals or exceeds the value of nisaab.  They are not obliged to pay  Zakah but at the same  time, cannot receive it.

3) Collectors of Zakah (Al-‘Aamileen)

Al-‘Aamileen  are those persons who are appointed by the Islamic Ruling Areas, or Muslim ruler, for the purpose of collecting Zakah. Zakah can be given to them as the salary for their efforts in collecting Zakah, even when they are Sahibun Nisaab or rich.

In regard to the rest of the seven categories of recipients, need is defined as a requirement and a rich person cannot be a recipient of Zakah. This is not the case with  Al-‘Aamileen  because the head of the Islamic governing areas is responsible for the needs and welfare of the poor within his jurisdiction. He is therefore deemed to be their agent. 

The  Al-‘Aamileen, as employees of the head of state, are likewise agents of the poor and needy. It follows that the Zakah obligation is discharged as soon as the Zakah is paid by the Zakah payers to the  Al-‘Aamileen. And the salary  given  to  them  is  as  if,  given  by  the poors themselves. It is exactly like the case when a person, who is  eligible  to receive Zakah, hires  an attorney and pays his fee from the Zakah he received. 

4) Those whose  hearts are to be won  (Al-Mu’allafatu-Al Quloob)

This category of recipients refers  to the poor and needy Muslims (Fuqara and  Masakeen)  who are given Zakah for the express purpose of strengthening their hearts and making them more inclined towards the Islamic practices. Non-Muslims are excluded in accordance with the general principle that they do not qualify as recipients of Zakah

5) The cause of (freeing) the slaves (Ar-Riqaab) 

The word  Riqaab  is the plural of  Raqabah,  which literally means “neck”. In Arabic usage, it is taken as a whole person, therefore refers to a slave.

The majority  of  the jurists are of  the view that  the word  Raqabah mentioned in the verse is confined to the  Mokatab. Mokatab  is  that slave who enters  into a contract with his master in terms of which, the latter undertakes  to free him against payment of a fixed sum of money. The view of the majority of the jurists is for the reason that in paying Zakah, the recipient must be made owner of the Zakah property. In addition, Zakah cannot be paid as consideration for services rendered on the part of the recipient.

In  the  case  of  disbursing  Zakah  to  free a slave, the master becomes the owner of the Zakah in  return for the slave’s freedom. The slave himself cannot own property for want of legal personality.  On the other hand, payment of Zakah to the Mokatab makes the latter owner thereof. 

6) Debtors (Gharimeen)

The word  Gharimeen  is the singular of  Gharim.  It means debtor. The verse refers to a specific type of debtor, i.e.  the one who is poor. A  debtor can only  be  said  to  be  poor  and  thus  eligible  to  be  the  recipient  of  Zakah  if  his net assets  (the difference between his  assets and liabilities) is below nisaab.

7) The way of Allah (fi Sabilillah)

All interpretations narrated by  the  Sahabah and  Tabi’een, regarding the word  fi sabilillah, have expressively defined this  word as either for Mujahideen  or for pilgrims of  Hajj.  Imam  Ibn Jarir  and  Imam Ibn e Kathir, who restricted themselves to interpret  the verses of the Holy Qur’an in the light of  Ahadeeth,  have particularized the word  sabilillah  with those Mujahideen  and pilgrims of  Hajj  who do not have  enough resources to perform their respective deeds.

On the other hand, some  Muslim Jurists such as  Allama Kasani
(The  author  of  Badai-us-sanai)  have generalized the  interpretation and extended  the  meaning of  sabilillah  to all good acts  enjoined by the shariah. However, these Jurists have specifically described that the recipients must be  poor and needy persons. Therefore, the jurists  are unanimous on the point that Zakah cannot be spent on projects that would promote the interests of and be beneficial to the Muslim Community e.g. building of hospitals, roads, bridges and the like.

8) Wayfarer (Ibn-us-sabil)

This category refers to a traveler who,  despite being wealthy at his place of residence,  is  in  need  during  his  journey.  It  is  permissible  to  give  such traveler Zakah to the extent of his needs. It is not permissible for such traveler to take Zakah in an amount which exceeds his needs and requirements. It is preferable for such traveler to borrow funds if he is able to do so than to accept Zakah (Fathul Qadir pg: 269 Vol: 2)

Some Important rules relating to the recipients of Zakah 

⚫  If someone owns cash, trading assets, gold  and silver equivalent to the value of 612.36 grams of silver,  he/she is considered as wealthy in Shari’ah, hence not eligible  to receive Zakah. (Fatawa  Hindiyah Pg: 189,  vol:1 & Bahishti  Zewar pg:225)

⚫  If someone owns, in excess of basic necessity, an asset or property on which Zakah is not levied (such as diamond, vacant land – not for commerce) and the excess is equivalent or  above the value of 612.36 grams of silver, he is  also considered as  wealthy in Shari’ah. He cannot receive Zakah but at the same time,  is not obliged to  pay Zakah. (Bahishti  Zewar pg:  225)

⚫  If one has cloths or crockery that are not used for years but for once or twice, then these  cloths  or  crockery will be considered as an excess of basic necessity. Hence if its value is equivalent or above the value  of  nisaab, the owner cannot receive Zakah.( hashiah Ibn-e-Aabideen (Bab  Masraf-iz-Zakah  wal  ushr). Pg: 348, Vol: 2)

⚫  The house in which one lives,  the household furniture, servants, personal clothing and a motor vehicle, all are basic necessities. The owner of all these assets will not  be considered as wealthy, no matter how expensive the assets are. Rather he is entitled to receive Zakah, if he does not have any zakatable asset equivalent to the value of  nisaab.  ( hashiah Ibn-e-Aabideen (Bab  Masraf-iz-Zakah  wal  ushr) Pg: 348, Vol: 2)

⚫  If a person has given some of his houses on rent and he  does not have any assets on which Zakah is levied, he can receive Zakah. (Hashiah Ibn-e-Aabideen  (Bab  Masraf-iz-Zakah  wal  ushr).    Pg: 348, Vol: 2)

⚫  If a person has 20,000/- Rs. and he is indebted of 20,000/- Rs., he can receive Zakah. If, in the above case, he is indebted of less  than 20,000/- Rs., then if the balance is  equivalent or  above to the value of  nisaab, he cannot be given Zakah. And if the balance is less than the  nisaab, he can be given Zakah. (Hindiyah  pg:  188,  vol: 1)

⚫  Zakah cannot be  given to a minor  child of  a rich person  because such minor is deemed to be rich by virtue of the wealth of his father. If the child is  major and needy, Zakah  may be given to him irrespective of the financial standing of his parents (Hindiyah  pg:  189, vol:1).

⚫  Zakah can be given to a minor child  whose father is not rich, but his mother is rich and wealthy because,  a minor child is not considered rich by virtue of the wealth of his mother.  (Ad-durrul-Mukhtar (Bab Masraf-iz-Zakah wal ushr))

Zakah can be given to a poor woman whose husband is rich.
(Badai-us-sanai pg: 476, vol: 2) Similarly, it is permissible to give Zakah to a poor person whose child is rich.

⚫  There is consensus of the Muslim jurists that it is not permissible to give Zakah to non-Muslims (Badai-us-sanai pg: 480, vol: 2). Other forms of voluntary charity (sadaqah naafilah) may be given to them (Badai-us-sanai pg: 482, vol: 2).

Zakah cannot be given to the children of Banu Hashim. These are descendants of the Prophet’s family (i.e. the descendants of Hazrat Ali , Hazrat Ja’far, Hazrat Aqeel (radhiyallahu anhuma) and Hazrat Harith ibn Abd Ul Muttalib and are commonly known as Sayyids (Badai-us-sanai pg: 483, vol: 2) .

Zakatable Assets 

Allah Ta’ala has put the most minimum burden of monetary obligations on Muslims so that paying Zakah becomes convenient for every sahib-un-nisaab Muslim. 

Firstly, it is not obligatory to pay Zakah on every asset. Rather only those assets are the subject matter of Zakah that have the potential of growth or increase. These assets may be broadly classified as follows:

1- Trading assets.
2- Cash & Cash Equivalent (like prize bonds, Travelers Checks etc) 3- Gold and silver
4- Livestock (goats, sheep, cows and camels)  
5- Agricultural output. 

The principle governing the levy of Zakah is that only those assets are zakatable, which fall within the definition of money, like silver and gold. All other assets are not zakatable unless they are meant for trade and resale.  

Secondly, only the balanced value of these assets at the end of the year is the subject matter of Zakah. No Zakah is obligatory on the amount spent over the whole year.  

General conditions for all zakatable assets 

1- Ownership:- The subject matter of Zakah must be in the complete ownership of the
payer. If someone possesses an asset but does not own it, Zakah is not liable on it. (Badai-us-sanai. Pg:  389, vol:2)

2- Potential of growth:- The asset must have  the potential of growth as the  word Zakah itself means “Growth” or “Increase”. (Badai-us-sanai. Pg:  394, vol:2)

3- Asset must be in excess of basic necessity:- The subject matter of Zakah should be other than  the basic necessities of a person. So the assets included in the basic necessities e.g. crockery, furniture, car etc  are not the subject matter of Zakah provided that these assets are not purchased with the intention of sale.

4- One year  must elapse over the asset:- It is necessary that one year elapses over  the asset which is subject to Zakah

It means that possession of  nisaab  value should be both at the beginning and end of a lunar year. It  is not necessary that a complete year passes on every  single rupee. Rather, when a person is  sahib-un-nisaab  in the beginning and the end of  the year, then he will be considered  as  sahib-un-nisaab  and the fluctuating amount during the year will not be considered as the subject matter of Zakah

A detailed clarification of the highlighted portion is as follows:

If some one acquires a property before the completion of his Zakah year and he is the owner of the wealth above the value of  nisaab, then  one of the following situations may arise:

a) The addition during the year is not the same kind or category as the  existing property. For example, a person has gold or silver and thereafter during the  course of the year acquires sheep. 
b) The addition is of the same kind or category as that of the existing  property. This addition  may be derived from the existing property, for  example,  profit arising during the year from sale of trading stock; or  acquired from another source, for example, a person has cash and thereafter during the year acquires further cash by way of inheritance.

In case ‘a’, the year for the gold or silver and sheep will be calculated separately.  

However, in case ‘b’, the subsequent acquisition will be added or joined to the existing property for Zakah purposes and the Zakah for both will be paid together at the end of the Zakah year for the existing property. In other words, Zakah years will not be calculated separately for each subsequent acquisition in case ‘b’. (Badai-us-sanai. Pg: 399, vol: 2)

It should be kept in mind that if the subsequent acquisition is made after the expiry of the Zakah year, then a new year will be calculated. Similarly, if the existing property is below nisaab, the subsequent acquisition cannot be added to the existing property. (Hindiyah. Pg: 175, vol: 1)  

5- Asset must be equivalent to Nisaab:- Zakah is not levied on total assets if they are below the level of Nisaab. (Badai-us-sanai. Pg: 403, Vol: 2)   

Amount of Zakah 

The amount of Zakah payable is two and a half percent (2.5%), or 40th portion of: 

1. the value of gold and silver if it is equivalent to nisaab or above it.

2. trading stocks, or its value at the time of obligation of payment of Zakah, if the stock is equal to nisaab

3. cash on hand if equal to nisaab
Zakah on gold and silver 

⚫ Gold and silver are subject to Zakah regardless of whether they are owned for personal use or otherwise if the weight thereof equals the prescribed nisaab and one year elapses thereon. Gold and silver are also always liable to Zakah irrespective of the asset type (gold bar, jewellery, ingot, coin etc.) (Hindiyah Pg: 178, Vol:1)

⚫  Zakah is not payable on any other kind of jewels, gems or precious stones, such as diamonds, rubies etc. If these metals are, however, acquired for business, then Zakah will be payable thereon as they would then constitute trading stock. (Ad-durrul-Mukhtar Pg: 273, 2)

⚫ If gold or silver is not pure, and some other commodity (such as copper etc) is added to it, then if the major portion of the element is  of gold or silver, it is considered as gold or silver respectively  and Zakah will be obligatory  on it. And if gold and silver is in minor proportion, then  it is not considered as gold or silver and no Zakah will be obligatory provided that it is not purchased with the  intention of sale. (Badai-us-sanai. Pg:  408, Vol: 2)

⚫  If a person has some gold and silver and the independent amount of both of them does not reach  nisaab, then  if the combined value of gold  and silver reaches  nisaab  of silver, the accumulated worth will be the  subject matter of Zakah. And if  the combined value  of gold and silver does  not reach  nisaab  of silver, Zakah is not obligatory. (Badai-us-sanai. Pg:  411, Vol: 2) 

⚫  If gold and silver reaches  nisaab  independently, then valuation of the combined value is not needed. Rather, in this case, Zakah of gold and silver will be paid independently from the other. (Badai-us-sanai. Pg:  414, Vol: 2) 

⚫ Someone has a complete  nisaab  of silver. He got some more silver or gold before the year completed. Zakah of that additional silver or gold will  be obligatory alongwith the completion of the year  of the already owned silver and gold (Badai-us-sanai. Pg:  399,  vol: 2)  i.e.  no  additional  or  a complete year is required for  Zakah being obligatory on that Zakah on cash additional gold and silver.

For example, the Zakah year of a person ends on 1st  Ramadhan.  On 25th  Shaban he has some gold and silver of the value of one hundred thousand rupees (Rs.  100,000/-). On 29th  Shaban, he purchased additional gold valued  two hundred thousand rupees (Rs. 200,000/-). Now on 1st  Ramadhan, the value of zakatable gold and silver of that  person would be three hundred thousand rupees (300,000/-). 

⚫  A person has cash equivalent to the  nisaab  of silver. Some amount of  more  cash  is  achieved  before  the completion of the year. Then the added amount  of  cash will  be  deemed as subject matter of Zakah after completion of the year of the previous amount. (Badai-us-sanai. Pg:  399,  vol:  2)

⚫  Cash is fully subjected to Zakah. It includes bonds, travelers’ cheque, and other cash equivalents. ( Ahkam-e-Zakah by Mufti Muhammd Rafi Uthmani pg:24)

⚫ If a person has cash equivalent  to 87.48 gm of gold or 612.36 gm of silver, Zakah is obligatory on him,  for  cash comes under the same ruling as gold and silver in terms of paying Zakah. ( The rules  of  Zakah (Written  by  Muhammad  Shoaib Omar)  Pg:  41)  

⚫ If a person has some amount of  cash, some gold, and some silver and neither of the three individually reaches  nisaab, then the value of gold and silver will be added to the amount of cash, and if the combined amount reaches  nisaab, Zakah is obligatory. If the combined amount does not reach  nisaab, no  Zakah is to be  paid.
(Badai-us-sanai. Pg:  411,  Vol:  2)

⚫  A person has cash equivalent to  nisaab. He  got some more cash a few days before completion of year. This more amount of cash will be subject to Zakah after completion of the year of previous amount of cash. ( Badai-us-sanai. Pg:  399,  vol:  2)
For example, the Zakah year of a person ends on 1st  of Ramadhan. He has Rs. 30,000/- on 28th  of Shaban. On 29th  Shaban, he receives Rs. 5000/- more. Now  the zakatable cash of that person on 1st  of Ramadan would become Rs. 35,000/-. 

Zakah on trading assets

Zakah is payable on trading stock if their market value is equal to or more than the value of nisaab.
(Badai-us-sanai. Pg:  415, vol:2)

Definition of trading assets

Trading assets are those, which are purchased with the intention of resale or capital gain. Consequently,  goods that have been  purchased for personal use and not for the purpose  of  trade are  not subject to Zakah, irrespective of their  value. (Badai-us-sanai. Pg:  395,  vol:2)
Similarly, goods (other  than gold  and silver) originally bought for  personal use are not subject to Zakah if the purchaser subsequently intends  to sell them  for trade and had not intended  it at the  time of purchase. Once sold, however, their sale price would be subject to Zakah (Badai-us-sanai. Pg:  396, vol:2). 

Likewise, a person may purchase  goods for personal use with the intention that if he is  able to obtain  a profit thereon, he  would sell the goods in which event, no Zakah is payable on  such goods. On the other hand, if an asset is not purchased and is owned by some other  means e.g.  inheritance or gift, then the asset will not become the subject matter of Zakah. (Ad-durrul-Mukhtar)   

In short, trading assets are those that are:

(i) purchased  and
(ii) purchased with the intention of sale.

If any of these two conditions is missing, the asset will not be treated as a trading one and thus will not be subjected to Zakah.

Following are some situations relating to Zakah on trading assets:

⚫  Nisaab  of trading assets is same as that of cash i.e. if  the value of the assets reaches the value of 87.48 gm of gold or 612.36 gm of silver, then Zakah is obligatory  after the completion of year. (Badai-us-sanai. Pg:  415,  vol:  2)

⚫  If a person has a house that is leased, the value of the house will not be subject matter of Zakah, as leasing a property does not render it a trading asset. However, the rentals received will be the subject matter of Zakah. (Fatawa Qazi Khan (on  the border of  Hindiyah) Pg:  351,  Vol: 1.)

⚫  Since the machines in  the industries are not trading assets, therefore no Zakah is  obligatory  on them. However, if they are purchased with the  intention  of resale, then Zakah will be obligatory.   (Ad-durrul-Mukhtar. Pg: 265, Vol:2)

⚫ The products manufactured in an industry, as well as the raw material, are subject matter of Zakah. (Ad-durrul-Mukhtar. Pg: 265, Vol:2)

⚫  If a person has some trading assets that  do not reach  nisaab, and then if  he has some other zakatable assets such as gold, silver and cash, and the combined value of  all zakatable assets reaches the value of 612.36 gm  of silver, then Zakah is obligatory. (Ad-durrul-Mukhtar. Pg. 303,  Vol:  2) 

Zakah on Shares

⚫ It is permissible for the Zakah payer to estimate a bulk  price of the trading assets i.e. the market  value of the stock–in-trade if sold in bulk at the end of the Zakah year, for purposes of calculating Zakah. (The rules of Zakat (by Mohammad Shoaib Omar) Pg: 38).

If shares are purchased with the express intention for resale or capital gain, then the entire value of the shares is subject to Zakah

If, however, the shares are purchased with a view to holding them as an investment and receiving the dividend  income, then  the following must be borne in mind. 

Ownership of a company’s shares confers undivided  ownership in the underlying assets of the company. The holder is a proportionate owner of the business. All business assets can be classified into two types for the purpose of Zakah

1.  Fixed Assets e.g. Machinery, buildings, Furniture etc.
2. Current Assets e.g. cash, stock in trade, receivables etc.

Fixed assets are exempt from zakah whereas, current assets are subject to it. The owner of the shares can  deduct  from the  Zakatable value a proportion equivalent  to that  of  the  liabilities and the fixed assets of the company. In  other words, it is permissible for the owner of the shares in this case that he does not take  into account the liabilities and non-zakatable assets such as plant and machinery etc. The way to ascertain the proportion of zakatable assets to  non-zakatable assets of a  company is to consult the  balance sheet and profit and loss  account. These documents are available as part of the company’s annual report.

Zakah Payable (Z.P) =  [Total Assets (T.A)  MINUS  Fixed Assets (F.A)  MINUS  Total                 Liabilities  (L)]  DIVIDED BY  Total  No. of Shares outstanding (S.O)  MULTIPLIED  BY 2.5%. 

The above mentioned formulae is  for the one who has the ability and resources to ascertain the exact amount of zakatable assets represented by the shares. However, if the calculation gets  complicated for somebody, then he should consider the entire value of the shares as his zakatable asset and thus pay Zakah for it.
(Islam Aur Jadeed Ma’ishat Aur Tijarat by Mufti Taqi Uthmani Sb. Pg: 63)

SUMMARY: For a common person (one who is not involved in livestock or  agriculture) all that needs to be taken into account for Zakah calculation is the following:

The amount of cash owned (be it  on person, in the bank, or loaned out. This can be money earned or income from additional  house, properties etc.) as well as the value of any gold or silver jewelry owned, (necklaces, watches, etc. but not the gems or stones within them),  and also, if one is involved in trade, then the value of one’s stock/merchandise at that  time constitutes one’s accountable total.

Debts owed to others should be calculated too and then deducted from the total zakatable assets. 

Intention (Niyyah) of Zakah 

The intention to give Zakah is a prerequisite for the discharge of the Zakah obligation (as in the case of Salaat and Saum). In the absence of such intention (whether due to ignorance or forgetfulness), the Zakah obligation is not discharged (Ad-durrul-Mukhtar Pg: 268. Vol: 2) and the amount paid over to the recipient will deemed to be Nafl sadaqah.

The requirement of an intention to fulfill Zakah is necessary in order to distinguish payment of Zakah from other forms of compulsory and voluntary payments to poor and needy persons. 

Following are some situations relating to the intention of Zakah

⚫ The Zakah obligation is discharged if the intention is made at either of two points of time:

      (a) at the time of giving Zakah; or 
      (b) at the time of separating and setting aside the Zakah amount for distribution. In this case, the Zakah would only be discharged if the physical transfer to the needy recipient is made. (Ad-durrul-Mukhtar Pg: 269, Vol: 2)

⚫ If a person gives an amount of money or property to a poor and needy person who does not own nisaab, and fails to make any intention at the time of such payment, but thereafter makes an intention of Zakah, then:

(i) if such property or money is still in the hands of the poor and needy person, the Zakah obligation will be discharged;
(ii) if the property or money is no more in the hands of the poor and needy person, the intention so made does not suffice and the Zakah obligation is not discharged. ( Ad-durrul-Mukhtar Pg: 268. Vol: 2)

⚫ If the Zakah payer or owner pays the Zakah amount to an agent for distribution to the recipients entitled and makes the intention at the time of such payment to the agent, then the Zakah obligation will be discharged if the agent gives Zakah to the poor without any intention on his part. This is because the intention of only the Zakah payer, and not that of his agent, is relevant for purpose of payment of Zakah. (Hindiyah Pg: 171, Vol: 1)

⚫ A person pays the Zakah of another from the latter’s property and without his permission, and thereafter such owner sanctions the payment. In such a case, if the amount paid is still in the hands of the needy recipient, the Zakah obligation is discharged. If not, the Zakah obligation will not be fulfilled and the payment will be in lieu of  nafl sadaqah. (Badai-us-sanai. Pg:  460,  Vol:  2)

⚫  A person gives an agent an amount of  money for distribution as voluntary charity (nafl sadaqah). Prior to payment thereof by the agent to a poor and needy person (faqir), the owner makes an intention that the amount so given should represent Zakah in which event if such amount is thereafter  given  to the poor then  the  Zakah obligation would be discharged.
( Badai-us-sanai. Pg: 460,  Vol: 2)

The principles of At-Tamleek

At-Tamleek  means the transfer of ownership of Zakah from the Zakah payer to a poor and needy person. It is,  in the context of Zakah,  subject to the following conditions:

i)  The transferor must be the Zakah payer (or his agent).

ii) The transferee (or recipient) must be a natural person entitled to receive Zakah in terms of the eight categories of the recipient of Zakah.

iii) The transfer of Zakah must be unconditional.

iv) The transfer of Zakah must not be a consideration for services rendered by the recipient.

v) The transferee (or recipient) must acquire physical possession of Zakah and thereby becomes the owner thereof.

If these conditions are not met, as for the instance  where Zakah is paid  as salary or used for building a mosque, the Zakah obligation is not discharged. (Ad-durrul-Mukhtar  Pg:  256-258, Vol: 2)

There is consensus amongst all  the four  schools of thought that  Zakah cannot be used for public welfare projects. The position  is summarized by Imam Abu Ubayd Qasim Ibn Sallam (Imam  Abu  Ubayd  Qasim  Ibn  Sallam  (154H-224  H)  was regarded  as one  of the most learned  scholars  of his times. He was the author  of  many  works  including  his  well  known  book  on  ZakahKitab-ul-Amwaal”) , is as follows:

In relation  to paying the debts of  a deceased person, or paying his burial expenses, or building  a mosque, or digging a  stream, similar public welfare schemes- Hadrat Sufyaan Thuri, and all the Ulama of Iraq and other Ulama are unanimous on  the point that these works cannot be undertaken with  Zakah money because they are not included in the eight categories of recipients mentioned by the Qur’an. (Kitab-ul-Amwaal, p. 610).

Agency and Zakah

One is not obliged to distribute  the Zakah by himself to the entitled recipients. He may validly appoint an agent (whether  natural person or organization) to pay the Zakah on his behalf.  

In appointing such an agent, the Zakah  payer must bear in mind that the Zakah obligation is not discharged if the agent fails to distribute the  Zakah to the entitled recipients. At  the  same  time,  possession of the Zakah amount by  the agent will be deemed to be possessed by the principal (Zakah payer) as in the case of those organizations, who are guilty of serious maladministration by collecting Zakah and not distributing the same for a number of  years without valid reason.

It follows that the Zakah payer must exercise utmost care in appointing an agent who must be both  trustworthy and also conversant with the laws  of Zakah.(Ahkam-e-Zakah by  Mufti Muhammad Rafi  Uthmani pg.38)

The agent, unless instructed to the contrary, may validly give Zakah to his wife and children if the latter do not own  nisaab. On the other hand, the agent himself cannot take Zakah unless he has  the express authority to do so. For example, he may take Zakah if the Zakah payer gives him a mandate in  the following terms: “Pay Zakah to whomsoever you wish”. (Ad-durrul-Mukhtar Pg:  269,  Vol:  2)

Zakah on the employees’ provident fund

If the salary  of the employee is  deducted  at source, without giving this amount to the employee, Zakah is not payable  on the amount kept in the Employees’ Provident Fund, until the employee receives the same. When an employee receives it on his retirement, the amount  so received shall form part of his zakatable assets of that year only, and such part of it, that is not spent before the valuation date, shall be subject to Zakah, and Zakah will be payable on  the aggregate balance of  his assets (including the balance of the amount received from the Fund) on the valuation date.

If, on the other hand, the employee first  receives this amount and then with his own intention, puts this money in the provident fund, then this money will become the subject matter of Zakah. And Zakah will be obligatory for all the years in which the money is kept in the fund. (Contemporary Fatawa by Mufti Muhammad Taqi Uthmani Pg: 86(  

In other words, the amount received from  the Provident Fund must be held for one year before Zakah is payable thereon. If the recipient has existing zakatable assets equal to  nisaab, then the amount received from the Provident Fund will be added thereon and the whole amount, or the balance remaining (in case of expenditure) will be  subject to Zakah of the next  valuation date. For example, the Zakah payer’s valuation date is 1st  day of Ramadhan each year, and he receives the lump  sum from the Provident Fund two months before that  date. The lump sum will be added to  his existing  nisaab, and he will pay Zakah thereon on his valuation date next, namely, 1st day of Ramadhan. (Footnote on the Contemporary Fatawas Pg: 86)

Zakah to the charitable hospitals

If Zakah is paid to a charitable hospital, certain arrangements must be followed otherwise Zakah will be void. 

Every Zakah deserving patient should appoint the management of the hospital as his agent to receive Zakah and spend  it  on procurement of the medication and paying cash against other expenses incurred against his treatment. This can be done through filling a form before the treatment of the patient. 

If a charitable hospital follows  this  arrangement, Zakah can be given to it. Otherwise, in the case where no agency agreement is made, Zakah will  be void.

An example of calculation of Zakah

A person ‘X’ is a manufacturer of  clothing. He has the  following assets and liabilities at the end of the Zakah year.

Assets & Monetary Value       

1.  House = 2,000,000
2. Furniture & Household Effects = 25,000      
3.  Motor  Vehicle = 600,000
4.  Gold = 100,000  
5.  Diamonds = 50,000
6.  Cash = 1,500,000
7.  Stock-in-trades = 1,000,000
8.  Machinery = 500,000
9.  Receivable  from  others = 800,000
10.  Vacant  Land = 800,000

Liabilities

11.  Bank  overdraft = 50,000
12.  Trade  creditors = 500,000
13.  Loans = 700,000

Total  Liabilities = 1,250,000

Calculation of Zakah Assets subject to Zakah

1.  Gold = 100,000
2.  Cash = 1,500,000
3.  Stock-in-trades = 1,000,000
Total = 2,600,000
Less  Liabilities = 1,250,000
Balance = 1,350,000
Two and a half % of 1,350,000 is 33,750

Hence X is obliged to pay 33,750 as Zakah.
                                                            Notes                                                      
1, 2 and 3: the house, furniture and fittings and motor vehicle are not subject to Zakah unless they are purchased for trade. 

4: Gold is subject to Zakah whether for personal use or otherwise.                   

5: Diamonds, precious stones and metals  are not subject to Zakah unless acquired for trading purposes. The same  applies to all metals other than gold and silver.

6 and 7: Cash and stock in trades are subject to Zakah by consensus of  jurists, because they are assets capable of growth through commerce and economic activity.

8: Machinery is a means of production which depreciates in value over time and is not an asset capable of growth. Hence, they are not subject to Zakah.

9: Account Receivables from others are  subject to Zakah but the obligation to pay Zakah thereon only arises upon receiving of the debts in question in which event, the Zakah of preceding years must also be paid on such debts.

10: Zakah is not obligatory on land unless acquired for trade. Even if they are purchased for rent, Zakah is not obligatory. 

11, 12 and 13: These debts must  be deducted because the assets  of the debtors are correspondingly exposed to the claims  of creditors, according to Hanafi Law. However, if the mortgage  bond  or bank overdraft or other long term liability is of such a large amount so as to nullify the Zakah liability then such debts must not be taken into account according to Shafi law.

ZAKAH CALCULATOR

Below is a mathematical analysis of how Zakah can be Calculated:

Assets = Totals (for example) – Your own case

Cash in hand  =10,000   

Total amount deposited in Banks = 20,000   

Account Receivables =             10,000   

Rental income accrued = 5,000   

Net Asset value of Bonds =  25,000   

Total value of Saving certificates = 30,000   

Market value of Gold & Silver (total) = 40,000   

Present value of the property (that is purchased for the purpose of resale) = 100,000   

Inventory (Trading Goods) =50,000   

Raw material and work in progress = 20,000   

Finished Goods = 30,000   

Shares (that are purchased for trade)1             40,000   

Total Assets = 380,000              

Liabilities                     Totals   

Total Amount/Accounts/Notes payable = 100,000   

Unpaid Rentals = 10,000   

Unpaid Salaries = 20,000   

Any other Dues (For e.g. Unpaid tax, utility bills etc.) =10,000

Total Liabilities = 140,000  
            
Total Assets – Total Liabilities = Net Assets * 2.5% = Zakah Payable = 6,000      

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