This mini guide was extracted from a very, very small portion of our special ebook called “Zakat Made Easy”. The A-Z of Zakat, made easy! If you enjoyed reading this article, do give our ebook some love!
Zakat is not just a duty; it’s a privilege and an opportunity to make a positive difference in the lives of others.
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Welcome, dear readers, to our journey into Zakat—the third pillar of Islam that holds immense significance to the extent that it is often mentioned together with Salah (prayer) in the Qur’an to emphasize its significance and importance in the life of a believer.
Understanding the Essence of Zakat
At its core, Zakat is an act of ibadah (worship) performed by donating a specific portion of some particular types of wealth to some specific kinds of beneficiaries.
Yes, in general Islam encourages charity, which can be done with or without wealth. It can be general charity (sadaqah), or a perpetual one (waqf, sadaqah jariyah) both of which are recommended. However, Zakat specifically, is an obligation for Muslims who meet the eligibility criteria and direct charity to the poor and other eligible beneficiaries.
By fulfilling this obligation, we not only fulfill a religious duty but also contribute to the betterment of society as a whole. A mere 2.5% of our wealth can feed millions of people around the world if it was collected and distributed efficiently. The obligation of Zakat creates a fair balance and solidarity between the rich and the poor. Excluding Zakat creates an imbalance in the economy and the society, where the rich get richer and the poor get poorer.
Navigating Zakat with Confidence
Giving out Zakat is an obligation for all eligible Muslims. “So how do I know if I’m eligible?” you ask. “And if I’m eligible, how much do I need to pay?” Navigating the intricacies of Zakat calculation and distribution can sometimes feel overwhelming, but fear not, inshaAllah, this mini guide will help you navigate the different facets of paying your Zakat.
Who is Eligible to Pay Zakat?
Muslim of sound mind
Free (not enslaved)
In control of their own wealth
Has reached the minimum threshold of zakat (known as nisab)
A full lunar year has passed over the zakatable wealth
Note: the nisab for Malaysia (approximately RM24,000) and Singapore ($7,700) as of the date of this article was published. Source: https://baitulmal.jawhar.gov.my/zkt_nharta_listyear.php
Conditions of Zakat
Zakat becomes obligatory when it meets certain conditions pertaining to wealth:
Unhindered private ownership of the wealth
It has an expected multiplied benefit and utility
It has reached of the nisab
It is surplus wealth; i.e., beyond principal needs
It is not encumbered by debt
What is nisab and how is it calculated?
Nisab is considered a certain financial threshold. It is described as the minimum amount of wealth that a Muslim must own before zakat is obligatory upon them. Since nisab is pegged to the value of gold, its value changes every year. The value of nisab is to be determined by the local Islamic council based on the average value of the price of 85g of gold in the past year.
Muslims whose wealth or net assets have reached this threshold are obliged to pay Zakat, which is merely 2.5% of the total value of the wealth which has been in their possession for more than one lunar calendar year.
What is al-Hawl?
In summary (trust me when I say this), Al-Hawl is the period of one lunar year that must pass over a certain amount of wealth at the end of which then zakat becomes due upon it. So when a person’s wealth hits the nisab, note the hijri date because this is when they begin calculating their zakat. On the same hijri date the following year, zakat becomes due.
If during the course of the year, the overall wealth dips below the nisab, then everything resets, the person starts calculating again, from the hijri date when the nisab is met again. This passage of one lunar year over the wealth that has reached nisab is known as Al-Hawl, and zakat needs to be paid as soon as the lunar year is complete.
Well, I guess I am eligible… so how do I calculate zakat?
Firstly, congrats, Allahumma barik! In this economy, not many people can pay zakat to begin with! Secondly, calculating zakat is a bit tricky because not all forms of assets are zakat-able.
Zakat is due on these assets:
Cash and liquid investments
Gold and silver
Property and similar fixed assets
Shares, unit trusts, and equity investments
Business assets
Debts owed to you
Essentials that a person owns like their house, theri car, their food and clothes etc. are not assets that fall under the obligation of zakat.
2 Simple Ways to Calculate Zakat
Total zakat-able amount divided by 40 = zakat
Total zakat-able amount multiplied by 2.5% = zakat
Deduct your liabilities to get the net zakat-able assets, and then compare the amount to the nisab. If it equals to or is more than, then a 2.5% of that value is to be paid.
Doing well so far? Actually, there is more to be mentioned (zakat on gold, silver, jewelry, debt, and even crypto!) but as stated above, this is a mini guide! I highly recommend you to continue reading further in our special ebook, “Zakat Made Easy”!
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