How to Calculate Your Zakat this Ramadan?

Smartchoice Editorial
May 12, 2018

Ramadan is one of the most awaited event of the year, for every muslim in the world. The Muslims, living in any part of the world keep preparing to pray and to be a better part of the society and fulfill their religious and social liabilities in the Holy Month of Ramadan. For the year 2018, Ramadan is just a few days away from us and we can see deserving people around us, preparing to welcome the Holy month. But what about those who are not even able to earn their daily bread? Islam has an answer to the question. Pay Zakat to the deserving muslims in the community and help them make their life better this Ramadan in a number of ways.

With no doubts, Zakat is one of the most important pillars of Islam and is mandatory for every Muslim who is financially stable, to pay Zakat. It is an act of worship and is obligatory that every eligible Muslim pays it once a year. The essence of the act is to help the underprivileged people of the Muslim community.

The Holy Quran has discussed Zakat, a number of times. According to Quran; “And be steadfast in prayer and regular in charity: And whatever good ye send forth for your souls before you, ye shall find it with Allah” (Qur’an 2:110).

As per the teaching of Islam, Zakat is paid to purify the wealth and to help the poor people in Muslim society. For this reason, the Muslims who own enough wealth is required to give a little amount from their wealth to the needy around them. Islam has set it as a duty of the wealthy people to serve the deprived Muslim community by helping them in every single possible way and by not letting them down in any case.

When Should We Pay Zakat?

According to the directions of Islam, a Muslim must pay Zakat if he or she has a surplus of the wealth in their possession. Once you own a specified excess amount of wealth in your possession for more than one year, you are bound to pay Zakat on it.

This wealth possession includes the following;

• Silver, gold or any other precious jewelry ornaments
• Money that is lent to others
• Stocks or shares
• Pension
• Cash saved in banks, a house where you are not living
• Any kind of property that is kept with the aim of investment or earning profit

How to Calculate Nisab?

To pay off your Zakat you need to find the exact amount of cash you are bound to pay on the specific amount of property or wealth you own. This specific amount of Zakat to be paid varies from one person to another and is called as Nisab in Islam.

Calculating the Nisab: Nisab is a cut-off amount. Whatever you own, if more than Nisab, you are supposed to pay Zakat on it. If your personal wealth is below the level of Nisab, you are not eligible to pay Zakat. Nisab can be calculated according to the current market price of gold or silver. Choose rates of either gold or silver and calculate according to that. The Nisab is the cash amount equal to the 3 ounce/87.48 grams of gold or 21 ounces/ 612.36 grams of pure silver. There are different online Zakat calculators that can help you calculate your Zakat and pay the exact amount of Zakat you own.

However, State Bank of Pakistan has set Nisab of PKR. 38,406 for the current year Zakat deduction from saving bank accounts, profit and loss sharing and similar bank accounts having a credit balance equals to announced Nisab.

Determining the Net Worth of Zakat:

Minus the liabilities form the Zakat eligible assets you own. For instance, your total assets for the year are PKR 60,000 and your net liabilities are PKR 20,000, the Zakat net worth will be PKR 40,000 (60,000-20,000=40,000). Calculate your own assets in this way and find how much do you need to pay for Zakat this year.

Calculating the Zakat:

You need to compare the Nisab (which is as per Government announcement is PKR. 38,406 for current year) with the net pool of Zakat and if the net worth of Zakat is more than the Nisab, you owe an amount of Zakat to be paid. If it is less, you do not owe any Zakat.

For instance, if the net worth of Zakat is PKR 40,000, and as per Nisab, you are eligible to pay 2.5% of Zakatable amount which makes PKR 1,000, but giving more than that is preferred, if you are financially stable to do so.

Once you are done with the calculation of Zakat, better is to gives it to reputed charities and organization that are directly linked to the people who are in need of financial aid. However, in Pakistan better suggested is to look around you and you may find many needy people who deserve Zakat and stand under the 8 categories of Zakat eligibility. If you know any such person personally, pay Zakat to them.

Calculating Zakat on Profit:

Calculating Zakat on assets is different than the calculation of Zakat on the business profit or loss. When we speak about business, the profit or loss is irrelevant to the Zakat calculations. The Zakat for business is calculated on the basis of the current Zakatable assets owned by the company. For this reason, the company needs to use a balance sheet to determine the overall Zakatable owned by the company.

Moreover, Zakat has to be paid on the money deposited in the Islamic Banks and in such a case the Zakat will be calculated on capital money and that of the profit. If one complete lunar year has passed for the deposited money and the profit, the wealth is liable to pay Zakat on. However for any investment that leads to profit via interest of any kind, is not eligible for the Zakat.

Islam strictly refrains Muslims from interest and is considered as impure money for it is not the property of the owner. You can give this money to any poor person in need but you cannot give it in the name of Zakat. Zakat is must to be paid from the net profit that is earned thorough halal sources.

Calculating Zakat on Property:

If a person has more than one house with the intention of living and not keeping it to earn some financial benefit, no Zakat is applicable on any such property. But if the property is brought with the intention to be sold to earn profit, Zakat shall be applied on it. If the property is bought and rented and the money is used to meet the daily needs, no Zakat will be applicable.

Calculating Zakat on Payable and Receivables:

On payable no Zakat is applied. While on receivables, if you lent out money and you know that the money will be returned (even if the money is not returned yet), Zakat will be applied on it. Moreover, Zakat can be paid on the receivables together even when the lent money is returned after sometime and if one party is in the process is deceased before the money is received to the receivable no Zakat shall be applied on that money.

Calculating Zakat on Minor Property or Jewelry\Funds:

No Zakat is applicable if jewelry, funds or property is bought for the kids, and are not used by the parents. The Zakat will be applicable on such items once the kids each their age of maturity.

Calculating Zakat on Livestock:

Calculating zakat on livestock is confusing since long. According to the most authentic sources the Zakat on livestock farming is calculated as of 2.5% of the total units of the animals in possession of a person. However the minimum limit is to have 100 units of animal and in such a case the person has to pay 2.5 animal unit of his net live-stock.

Difference between Zakat and Tax:

Tax and Zakat are two entirely different things and we must not compare Zakat with tax. People believe that paying Zakat is a voluntary act while paying the income tax is mandatory. This is a wrong belief. Zakat is one of the basic 5 pillars of Islam and is a must for every eligible Muslim to pay Zakat. While on the other hand tax is paid to the government for the offered services or facilities while Zakat is something completely linked with the religion and has nothing to do with the political stance.

Who can receive Zakat?

You cannot give Zakat to anyone who is in need of money but, Islam has defined a specific set of people who are eligible for Zakat. According to Islam and Quran, there are 8 kinds of people who are eligible for Zakat in Islam, as said by Quran;

“Indeed, [prescribed] charitable offerings are only [to be given] to the poor and the indigent, and to those who work on [administering] it, and to those whose hearts are to be reconciled, and to [free] those in bondage, and to the debt-ridden, and for the cause of God, and to the wayfarer. [This is] an obligation from God. And God is all-knowing, all-wise.” – Al-Tawbah, 9:60

The list of eligible Zakat holders includes the following;

1. Al-Fuqara: These are the people who do not have enough money to fulfill their basic needs or necessities of life.

2. Al-Masakin: They are the people who do not have any kind of income or anything in their possession.

3. The Zakat Collectors: These are the one who are administrating Zakat and belong to any organization who is offering the Zakat collection and distribution services to the Muslim community.

4. New Convertors: It means the one who has newly converted to Islam and have no means of income or survival because they get detached from their family or community.

5. The Captives and Slaves: These are the people who are kept as slaves by others. The Zakat can be given to set these slaves free.

6. The Debt-Ridden: These are the one who are highly in-debt and have no mean to pay off their debts. You can give them Zakat to help them pay their debt.

7. For the Cause of Allah: You can give Zakat to those who are fighting in the path of Islam and Allah Almighty.

8. The Wayfarers: It includes the travellers who are far from their home or are alone in a new place and are in extreme need of money for food or to reach their homes back.

Along with all including Zakat, Islam has defined every rule and regulation to help us play our role in making the world a better place to live, for others and to support who are in need of any kind of help. For this reason, Islam places an emphasis on Zakat and Charity activities.

Should We Give Zakat Only in Ramadan?

It is a major misconception that you can only pay Zakat in the month of Ramadan. An eligible Muslim can pay Zakat at any time of the lunar year. However, to help you keep the check of the cycle, suggested is to pay Zakat in the first month of the year so that you can keep a check of when the year will pass and what is the next time you will need to pay the Zakat. For this reason, you must not wait for the month of Ramadan to pay Zakat. Once you are eligible and liable to pay Zakat, pay it.

Can We Give Zakat to Relatives?

If your relatives are needy and poor and do not have any source of income, you can pay Zakat to them. However, one cannot give Zakat to the parents, spouse, children, and sibling and to any of the person with whom they have a blood relation.

Calculate manually or ask for an expert help, paying Zakat each year is a must for every eligible muslim as it will support other needy people around you. The Holy month of Ramadan is about to come and it is the best time to pay off your Zakat and to start a periodic cycle to keep a check on Zakat related activities in a better way.

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