29/03/2024
A quick guide on *Zakat* & how it is calculated and the basic principle of Zakat.
Zakat is an obligation for morally responsible Muslims who have reached the minimal zakatable-amount (Nisab) and have possessed it for a full lunar year (Hawl).
Hawl is typically 354 days long, & is more commonly known as the Islamic calendar.
It's calculated at 2.5% of your total wealth, including cash, gold, silver, money lent out, trade goods, stocks, and agricultural produce.
Once you've calculated all your zakatable assets, subtract your debts and immediate expenses. For example, if you have £1,000 of wealth, you'd owe £25 in Zakat.
It does not matter if your wealth decreases or increases during the year. It is the value of your wealth/assets at the end of the lunar year that is used to calculate and pay the Zakat (if it still exceeds the nisab).
Zakatable assets” include:
(a) Cash – whether in currency form or in the bank,
(b) Gold and Silver,
(c) Money lent out,
(d) Trade goods,
(e) Stocks, and
(f) Agricultural produce.
After one calculates the above, one deducts:
(a) Debts, and
(b) Immediate expenses.
Most scholars agree that any mortgage that you may hold, should not be included in that calculation.
Your wealth or net assets can be summed up as the liquid assets you possess minus your short term liabilities.
Liquid assets are those that can be transformed into cash very easily. Short term liabilities include your bills, rent, personal loans and credit card debts.
Here’s a list of things that should be included in your assets:
Cash in the bank and at home
Cash saved for any special purposes e.g. wedding, Hajj, car purchase, etc.
The value of gold and silver you own
The value of shares at their market price
Money owed to you, which is highly likely to be repaid
If you own a business, the balance sheet value of the stock(s) you possess.
If you own properties, any rental income that has been saved.
GOLD AND SILVER
In the Hanafi school of thought, all gold and silver owned must be considered as part of one's wealth/assets for Zakat calculation.
Contrarily, according to the Shafi school of thought, gold and silver intended for personal use are exempt from being included in one's wealth/assets for Zakat calculation.
If your entire wealth consists of gold, its value must meet or exceed the gold nisab to qualify for Zakat payment.
If your wealth comprises a combination of gold, silver, and cash, it's advisable to use the silver nisab threshold.
Many scholars recommend including all gold and silver owned as part of one's wealth/assets for Zakat calculation, regardless of whether they are for personal use.
Abu Huraira (may Allah be pleased with him) narrated that the Prophet Muhammad (peace be upon him) said: "Charity does not in any way decrease wealth, and the servant who forgives, Allah adds to his respect; and the one who shows humility, Allah elevates him in the estimation of the people." (Muslim).
And ﷲ knows best.
