It is Ramadan, and many of us are asking how to calculate Zakat at this time. But how about we take a step back and appreciate what Zakat is? Why is it so significant in Islam?
Charities continue to give help and support at a time when many services and companies restriction, borders block, and many people’s livelihoods are unclear. Humanitarian organisations throughout the world are working hard to ensure that the most vulnerable individuals not forgotten during this outbreak.
But they wouldn’t be able to operate without the generosity of people who are willing to give at a time of crisis. As Muslims, giving charity is more than a means of earning Allah’s pleasure, it’s also an obligation and a right we must fulfil, known as Zakat. {Quran 70:24-35}
What is Zakat?
So, just what is Zakat? Zakat is a charity payment by Muslims, estimated as 2.5% of their surplus money. Zakat generally computed as 2.5% of your savings and financial assets not needed to cover your living costs. Any money used to pay bills, home payments, or other necessities excluded from the computation. Other conditions meets when determining how to compute Zakat – or if you satisfy the threshold to pay at all. The specifics may be found in our Zakat Guide Booklet.
What is Nisab?
Nisab is the bare minimum of wealth that determines whether you are required to pay Zakat. If your possessions exceed Nisab, you are required to pay Zakat that year. If it is less, you do not have to pay Zakat.
The threshold of minimal wealth (Nisab) in Islamic Law is specified by two fixed values: 3 ounces of gold or 21 ounces of silver. Because gold and silver are no longer used as currency, we can compute their monetary worth online.
Gold
According to the gold standard, the Nisab is 3 ounces of gold (87.48 grams) or its monetary equivalent. This may be calculated online by multiplying the amount of grams by the current gold market value.
Silver
According to the silver standard, a Nisab is 21 ounces of silver (612.36 grams) or its monetary equivalent. This may be determined online by multiplying the number of grams by the current market value of silver.
If you’re wondering which Nisab threshold (gold or silver) to employ, the Hanafi school of thought believes that the silver standard is more commonly used to determine the Nisab threshold and ability to pay Zakat. Having said that, there are current Hanafi scholars who would prefer to adopt the gold standard, especially in today’s times when the expense of living is much more than it used to be and the value of silver has substantially decreased.
Other schools of thought utilise the value of gold, however if you want to boost the quantity of charity donated, you may adopt the silver standard.
How is Your Zakat Used?
Zakat is much more than a once-a-year duty. It’s a revolutionary idea that has the ability to alleviate the misery of millions of people all around the world. It is so significant in our religion that it is referenced more than 30 times in the Quran, frequently in conjunction with the beginning of prayer.
Allah (SWT) defines true believers as those “who are steadfast in prayer and give Zakat.” (Quran 5:55) Because of this, we are set apart as a people who strive not only toward inner refinement but also public service – through our Zakat.
So, how does your Zakat help to alter people’s lives? The goal of Zakat is to provide for the poor and needy, the vulnerable and the disadvantaged. Its purpose is to guarantee that our combined wealth reaches those who need it the most.
At Al Wahab, we work hard to ensure that your Zakat is distributed in a way that helps individuals to overcome the cycle of poverty. Our mission is to give relief and eventually help individuals get out of tough situations by assisting them in becoming financially independent.
Who Receives Zakat?
Muslim scholars base Zakat eligibility on the following verse in the Quran:
As we can see, there are eight different types of persons that can receive and profit from the Zakat. In today’s world, and considering the status of the world, we predominantly donated zakat for first two groups, because their needs are the biggest and most urgent.
We work with the lowest of the poor and those who are most vulnerable in the midst of crisis and tragedy to identify individuals who are far below Nisab. Orphan homes, single female-headed households, those with impairments, and the elderly are all included.
How Do I Know If I Need to Pay Zakat?
Zakat, like any other Islamic requirement, is only obligatory provided specific criteria and satisfaction. We all know that Allah (SWT) never burdens a soul with more than it can handle.
The majority of experts think that Zakat is necessary for Muslim adults of sound mind who hold the minimal amount of Zakatable wealth, or Nisab, for at least one lunar year.
You should aware yourself that certain schools of thought believe that children with money or inheritance obligated to pay Zakat if they satisfy the following criteria: Muslim, total possession of the wealth for one lunar year, and meet the Nisab level.
This does not, of course, apply to children’s allowances or Eid money, but rather to minors with trust funds or inheritances. The nuances and technicalities are beyond the scope of this blog entry, but you may get further information from your local scholar. We only wanted to alert you to this possibility. Read More: How to Kids Learn With Basic Islam.
How to Calculate Zakat
The amount of zakat owed on these funds is 5000 USD, and the calculation is as follows:
(5000 ÷ 40 = 125) US dollars, this method is the easiest and fastest way to find out the amount of zakat due on funds.
If you have 5000 US dollars, then the calculation is as follows:
(5000 x 2.5 = 12500 ÷ 100 = 125) US dollars.
Zakat calculator websites or programmes created with the help of scholars. There, you will enter information about your various types of assets, and the calculator will tell you how much zakat to pay.
Total up all your sources of income:
Compute the total value of all the assets you have possessed over the course of the previous year. This includes:
Cash + Gold & Silver + Debts Owed to You* + Investment Property* + Shares & Stocks* + Investment & Saving Funds* + Business Assets*Your Total Income
Those highlighted with an asterisk (*) above have certain particular considerations and instructions. For further information, see our Zakat Guide Booklet.
4 Opinions Among Islamic Scholars To Understand
The way you approach your stock investments depends heavily on your aim (niya’).
Here are the four Islamic scholars’ perspectives that we should be aware of (of which the first two are the most popular and widely accepted):
Opinion #1
- Intention to purchase and sell within a year: Pay Zakat at a rate of 2.5% of the entire market value of your investment portfolio.
- Intention to keep long-term: Pay Zakat (2.5%) only on your share of the firms’ Zakatable assets (cash/equivalents + receivables + inventory) + dividends generated. Accounting expertise is must.
This viewpoint regards shares as tradable products, with the objective of buying cheap and selling high to create a profit in the near term.
This is comparable to a firm that often buys and sells items.
If you want to be a long-term investor, similarly to how a business partnership works, in which you are a genuine owner of a firm and its assets.
Opinion #2
Pay Zakat (2.5%) on the overall market value of the portfolio, regardless of whether the objective is short-term or long-term (treats all stocks as tradable goods).
This is the simplest computation yet the most conservative of the four viewpoints, hence it will result in a larger Zakat calculation.
In the case of Singapore, our MUIS followed Opinion #2.
Having said that, it is completely OK to embrace the other three points of view if you feel more at ease doing so.
Opinion #3
At the time of Zakat’s due date, pay 10% of profits/dividends.
This opinion handles your investments as if they were agricultural land, rather than as Zakatable assets.
As a result, only the earnings and dividends (i.e. the harvest) earned from your starting capital (i.e. your agricultural property) are taxable.
However, Recommendation is at a greater 10% rate in accordance with Islamic agricultural produce regulations.
Opinion #4
Pay only 2.5% on profits and dividends.
This is the most forgiving of all the viewpoints, resulting in the smallest amount of Zakat owed.
It handles the stock investments as though they were actual property (i.e. real estate).
In this comparison, you are effectively paying Zakat exclusively on the income and/or profits earned by the stocks, similar to how you approach property income gains.
Your Zakat with Al-Wahab Foundation
Al-Wahab Foundation may reach people in most need with your Zakat, delivering lifesaving and life-changing assistance. So far, it has provided safe drinking water to over 200,000 people and fed over 100,000 people in rural Pakistan through our Iftar and prepared meals programmes.
Al-Wahab Foundation has always considered itself an Amanah in the eyes of Allah since its inception (SWT). We try to operate long-term, significant programmes with your Zakat donations, assisting communities in breaking the cycle of poverty and maximising your benefits.
You can pay for the following:
- Access to safe, clean water is essential for improving health and sanitation.
- Meals packets and prepared food to feed those in need in an emergency
- Healthcare, such as free eye surgery, assists people in returning to work.
- By keeping impoverished children off the streets, a Maktab can provide them with access to school.
- Women’s empowerment programmes that assist widows in learning new skills and earning a steady income
Use the easy calculator below to determine how much Zakat you must pay. The nisab is worth 87.48 grams of gold or 612.36 grams of silver. Every Sahib-e-Nisaab should contribute 2.5% of their unfettered fortune to people in need every year.