Zakat is an obligation imposed by Islam on the rich people of the society in order to facilitate the poor through monetary ways. According to the laws of Islam, it is even considered as the basic right of the weak sector. Zakat is obligatory upon every Muslim who owns a specific amount of personal wealth and savings above a minimum amount known as nisab. Although it is only applicable on those possessions which have been in control of the person for more than one lunar year which compromises of 354 days.
Nisab of different items vary significantly. Nisab of gold is raised when someone is in possession of 87.48 grams of gold for a lunar year. Zakat on silver is raised when someone is in possession of 612.36 grams of silver for a lunar year. Zakat payable is equivalent to 2.5% of either weight of silver and gold or equivalent to the value of silver and gold.
How to Calculate Zakat on Savings?
Zakat is compulsory on following individuals:
- Mentally sound.
- Mature (Above 18 years of age).
- Individuals who have more amount than required for basic necessities of life.
- Free from debt individuals.
- Individuals with value of wealth including property above the basic threshold determined by Shariah.
- Individuals should have complete ownership of the asset.
- Free individuals (Free from slavery).
- Zakat is payable on such wealth or property which either grows materially or in value.
Zakat is payable on four kinds of assets. First kind is gold, silver and cash in hand as well as in bank accounts. Second kind is livestock such as goats, camels and cows etc. Third kind is products which are produced from land such as minerals, vegetables and fruits. Fourth kind is all kinds of trade goods which include property bought with intention of resale. However, Zakat is not payable on personal items such as cars, houses and land actively used by the person.
Only a particular class of persons are entitled to receive Zakat and they include the following individuals:
- Those living without livelihood.
- The needy who cannot meet their basic needs.
- Zakat collectors.
- Needy and poor who recently converted to Islam.
- You can pay Zakat money to free slaves from slavery.
- Stranded travellers in need of money)
- Debtors who got into debt while trying to earn livelihood.
- Individuals fighting for a religious cause or who are away from home in path of Allah.
Calculating Zakat on Savings:
There are two types of savings on which Zakat is payable:
- Amount in bank saving accounts in Islamic banks.
- Amount in bank saving accounts in normal(Non-Islamic) banks.
If you have invested money in Islamic banks, then the amount invested plus the profit earned is eligible for Zakat. Zakat is only payable if the amount maintains at minimum nisab amount during the whole year. If during the year, the amount decreases due to loss on investment or any other reason and the amount decreases below the nisab amount, Zakat is not payable. You can start calculating the time when the amount again reaches the minimum nisab amount and if the amount stays above the nisab limit for one whole lunar year, only then is Zakat payable on that amount. Zakat payable is equivalent to 2.5% value of money invested and profit earned.
If you have invested money is normal banks which also deals with interest, Zakat will be payable on only the amount invested in the bank and not on the interest earned on that investment. This is due to the reason that interest is forbidden and considered as haram in Islam and no Zakat is payable on money earned through haram means. You can give that money to charity but you cannot include that interest income for calculating Zakat. Zakat is due on 2.5% value of money invested only.
Zakat is the perfect system for redistribution of wealth. It is also a brilliant way of showing our gratitude towards Allah Almighty, in return for the blessings he has bestowed upon us. Zakat helps us to develop feelings for people of society who cannot afford an average lifestyle and helps us to grow as human beings as well. It encourages the society to reach its goal of prosperity, social justice and harmony which is also the need of the hour.