Zakat wa Sadaqah
 

Zakah & Sadaqah


What is Zakah?

Zakah is an obligatory form of "charity" expected from every Muslim individual. This form of "charity" is an act of worship and a form of social investment. Zakah is one the five pillars or fundamentals of Islam. The remaining pillars are the Shahadah (profession of faith), performing daily Salat (prayers), fasting and pilgrimage to Makkah. Zakah is considered an important economic tool in an Islamic State or society. It provides a religiously approved method of managing the economy and finance. Zakah has also been scrupulously prescribed in the Holy Qur'an (where it is mentioned in 30 verses of the Holy Qur'an) and Al Hadeeth.

 

Definition of Zakah

Literally, zakah means to "purify". It refers to the purification of a Muslim's wealth and soul. Wealth purification denotes the mobilization of assets for the purpose of financial growth and justified distribution. Purification of the soul implies freedom from hatred, jealousy, selfishness, uneasiness and greed. Other Qur'anic connotations include the purification of sin.

Technically, zakah is a fixed proportion collected from the surplus wealth and earnings of a Muslim. It is then distributed to prescribed beneficiaries and for the welfare as well as the infrastructure of a Muslim society in general. This contribution is made payable by a Muslim once in every lunar year (Islamic Calendar/Hijri).

Zakah is paid on the net balance after a Muslim has spent on basic necessities, family expenses, due credits, donations and taxes. Every Muslim male or female who at the end of the Hijri year is in possession of the equivalent of 85 grams of gold or more in cash or articles of trade, must pay his or her zakah at the minimum rate of 2.5%.

 

Objectives of Zakah

Zakah has a deep humanitarian and social-political value. This religious act prevents the hoarding of wealth and advocates solidarity amongst Muslims because excessive wealth is distributed amongst the poor.

The paying of zakah also helps purify one's soul and encourages a Muslim to have gratitude towards God's bounties.

 

Injunctions of Zakah

As it has been mentioned, zakah is mentioned vis-à-vis with Salat (prayer) in 30 verses of the Qur'an. It was first revealed in Surah Al Muzzamil: 20;

".... and establish regular prayers and give regular charity; and loan to Allah a beautiful loan. And whatever good ye send forth for your souls, ye shall find it in Allah's presence, Yea, better and greater in reward and seek ye the grace of Allah: for Allah is oft-forgiving, Most Merciful."

In another verse, Allah declares that those who pay zakah, are included within the Muslim society (Jama'atul Islamiah) - At Taubah: 11

"But (even so), if they repent, establish regular prayers, and practice regular charity, they are your brethren in Faith: (thus) do We explain the Signs in detail, for those who understand."

 

Conditions for Zakah

Several conditions must be fulfilled before zakah can be paid. These conditions are necessary as zakah can only be applied on those who are of legal age and who own enough assets. These conditions are categorized into two broad categories, namely performer and asset.

1. Zakah Performer

Muslim
Every Muslim who is of a certain age and owns enough assets is required to pay zakah.

2. Zakah Asset

Full Ownership
A Muslim will only be required to pay zakah if he or she has full and legal ownership of an asset.

Assets intended for increasing wealth
Zakah is payable only on those assets that are acquired for the purpose of creating or generating wealth. Some examples of this type of assets are livestock or crops that are traded or sold, inventory of goods used for trading, and investments such as gold or securities that have potential for appreciation in value. However, zakah is not payable in the case of fixed assets such as buildings, if they are not subjected to "capital circulation".

Assets that exceed a minimum value
Zakah need only be paid on those assets that exceed a minimum value. This minimum value is calculated based on the market price of 85 grams of gold or 595 grams of pure silver. This minimum value is termed Nisab. The Islamic Fiqh and Research Councils, as well as Jumhur (majority) of Ulama' recommend that gold be used as the basis for the calculation of nisab.

Completion of Haul
Haul is defined as the completion period for a zakah asset. The length of time for haul is one Islamic or Hijri year (1 year Hijri = 354.5 days, 1 year Solar = 365.25 days). Zakah is only payable on assets that have been held for at least this period.

 

Beneficiaries of Zakah

Zakah can only be distributed to any of the eight eligible beneficiaries (asnaf) that are mentioned in the Qur'an, At Taubah: 60. However, priority should be given to the poor and needy. Where there is no central authority to administer zakah, it can be paid directly to the needy.

“Alms are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bondage and in debt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah, and Allah is full of knowledge and wisdom.” At Taubah : 60.

1. The poor (Faqir/Fuqara)
Those without any means of livelihood and material possessions.

2. The needy (Miskeen)
Those without sufficient means of livelihood to meet their basic necessities. For instance, those who, although may have a job, a house and a car, but whose income is below the minimum requirement.

3. The administrators of zakah (Amil)
Those appointed to manage and administer zakah. This category is sub-divided into the following categories:

a. Group of people who go out to the society and determine those who fall Fuqara and Miskeen categories.

b. Those who collect the Zakah money.

c. The accountant of the Zakah money.

d. The administrator, manager, clerical worker or secretary who puts the files in order.

e. Those who handle Zakah distributions.

f. The auditor who audits overall Zakah management and administration.

4. The sympathisers (Muallaf)
Those who are inclined to enter or have already converted to Islam.

5. To free slaves (Riqab)
Zakah can also be used to free slaves or captives.

6. Those who are in debt (Gharimin)
Zakah can be used to pay off the debts of a person who has borrowed to pay for basic necessities so that he/she can lead a normal life. Zakah can also be distributed to those in financial difficulties e.g. bankruptcy due to the loss of employment and heavy debt.

7. For the cause of Allah (Fisabillillah)
Zakah can be used to finance any form of struggle or work for the love of Allah. The following examples fall under this category, e.g. Da'wah; building & developing society's infrastructure; defending Muslims, who are being oppressed; assisting poor travellers and sponsoring a student's educational expenses.

8. Those who are stranded during a journey (Ibnus Sabil)
Zakah can also be used to help a traveller facing difficulties in continuing his journey due to reasons such as loss of money or the break down of his vehicles, the repair of which he cannot afford.

 

Types of Zakah

Zakah Fitr

Zakah Fitr is a one off payment that is made once in every Muslim Hijri calendar year at any time between the first day of the month of Ramadhan and the first day of Shawal. All Muslims are obliged to pay this, regardless of their age, status or wealth. The amount of zakah payable is approximately 3kg of staple food in the relevant country or an amount of money that is equivalent to the price of the food.

Zakah Al-Mal (on wealth)

Zakah al-Mal is an annual payment based on the amount of wealth owned by a Muslim individual or organization. This payment is obligatory upon any Muslim individual or organization that has completed the requirement of Nisab (minimum taxable amount) and Haul (one Muslim Hijri calendar year). The payment is 2.5% out of the total wealth deemed for zakah.

Zakah al-Mal can be subdivided into zakah on :

Zakah on business (Urad Al Tijarah)

In this context, business refers to any form of trading activities that generate income. Zakah is only payable on businesses, which are owned by Muslims. If both a Muslim and a non-Muslim own a business, only the Muslim's share of the business is subject to Zakah.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Intention (niyyah) to do business.
4. Business must be permissible (halal).
5. Haul is completed.
6. Nisab is reached.

The Zakah Calculation Formula

2.5% x [ (Current Assets - Current Liabilities) + Short Term Investment ] x Percentage of Muslim's Ownership

Steps in Calculating Business Zakah

1.

Determine the completed haul for the business operation (closing fiscal year of a business operation). Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the Net Current Asset - this includes cash in hand and in banks, deposits in banks or other sources, trade and non-trade debtors (receivables), stock in trade and other current assets.

3.

Determine Short-Term Investments - this includes Al Mudharabah General Investment Accounts, Negotiable Islamic Debt Certificates (NIDC) and any other Islamic-approved commercial papers.

4.

Determine the circulated business liabilities and payables for the year.

5.

Determine the percentage of ownership the Muslim has in the business.

6.

Determine all the cash or cash equivalents that the owner of the business has which are not directly related to the business operation.

7.

Calculate the zakah base (amount of income that is subject to zakah) by deducting the total liabilities for the year from the total net current assets, and then adding all cash or cash equivalent belonging to the owner of the business and multiplying that with the percentage of the Muslim's ownership.

8.

Compare the zakah base with the nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic year or 2.5775% (0.025775) if it is based on the solar year.


Zakah on Rental Income ('Urud Al Mustaghallat)

Zakah must be paid on rental income. Zakah is only payable on the rental income of properties that are owned by Muslims. If both a Muslim and a non-Muslim own a property, only the Muslim's portion of the rental income is subject to Zakah. Rental income from the properties that were acquired through financing or any other credit facilities not subject to zakah.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Asset was bought for the purpose of renting out or leasing.
4. Renting or leasing must be for permissible purposes.
5. Haul is completed.
6. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Total Rental Revenue - Rental Expenses - Current Liabilities] x Percentage of Muslim Ownership

Steps in Calculating Zakah on Rental Income

1.

Determine the completed Haul for rental or leasing operations (closing fiscal year of a business operation). Haul can be determined either using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the percentage of ownership the Muslim has in the property or properties.

3.

Determine the total rental revenue at the end of the haul.

4.

Determine all the relevant rental expenses incurred during the haul. This includes the maintenance, refurbishment and repairing costs or any other related expenses.

5.

Deduct the relevant rental expenses from the total rental revenue for the year.

6.

Deduct the current liabilities i.e. current creditors, any amount credited (owing) to suppliers, etc.

7.

Add the net amount of (6) with all the cash or cash equivalent of the property owner that is not directly related to the operation of renting or leasing.

8.

Multiply the total amount of (7) with the percentage of Muslim ownership to determine the zakah base.

9.

Compare the zakah base with the nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic year or 2.5775% (0.025775) if it is based on the solar year.

Zakah on Personal Income (Al Dakhl Al Shakshi)

In this context, personal income refers to the salary/wages, commissions, allowances, bonuses and monetary gifts earned by a zakah payer through permissible (halal) activities.

Applied Conditions

1. Muslim.
2. Fully entitled to the income.
3. Income must be derived from permissible (halal) activities.
4. Income must be in the form of cash or cash equivalent.
5. Benefits or perks are excluded in the calculation of zakah.
6. Haul is completed.
7. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Total Salary for the Year + Any Other Income - Allowable Expenses]

Steps in Calculating Zakah on Income

1.

Determine the completed haul for employment. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the total gross salary for the year.

3.

Add any other income for the year - this is inclusive of any commissions earned, allowances, bonuses, wages and monetary gifts.

4.

Deduct all allowable expenses such as:

·                     Expenses for one's self

·                     Expenses for partner

·                     Expenses for children

·                     Allowance for parents

·                     Charitable donations

5.

Deduct all the payments made to repay debts or personal financial loans.

6.

Compare the zakah base (the net amount) with nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

*** In the case of zakah on personal income, if the differences between calculation in using the Islamic and the solar year is immaterial (too small), zakah can be paid by multiplying the zakah base by 2.5% regardless of any type of basis year applied.  

 

Zakah on Savings (Idikhar)

Savings consist of money that is kept in a bank's fixed deposit, current, personal or other type of savings accounts. Cash that is lent or saved elsewhere must also be included for the purpose of calculating zakah. Zakah is calculated on the lowest amount that is available in a person's savings for the year. As a prerequisite that amount must exceed the nisab.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Total Lowest Annual Savings in Bank + Cash Saved or Lent Elsewhere]

Steps in Calculating Zakah on Savings

1.

Determine the completed haul for savings. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the lowest annual balance on Bank accounts for the year.

3.

Add any other savings such as cash saved or lent elsewhere.

4.

Compare the zakah base (the net amount) with the nisab (85gm of gold). If the base exceeds the nisab, multiply it by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

*** In the case of zakah on personal savings, if the differences between calculation in using the Islamic and solar year is immaterial (too small), zakah can be paid by multiplying zakah base by 2.5% regardless of any type of basis year applied.

Zakah on Gold & Silver (Al Zahhab Wal Fiddah)

Zakah is payable upon gold or silver which is bought solely for the purpose of investment. Jewelry and ornaments are usually excluded from zakah unless they are kept unused for one full year.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Asset was bought for the purpose of investment.
4. Haul is completed.
5. Nisab is reached. (Nisab for gold is 85gm while the nisab for silver is 595gm)

The Zakah Calculation Formula

2.5% x [Value of Gold + Value of Silver]

Steps in Calculating Zakah on Gold and Silver

1.

Determine the completed haul. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the weight of each gold and silver product.

3.

Determine the current market value of gold and silver as the products reach the completion of haul.

4.

Compare the weight of gold and silver with the nisab. If the weight exceeds the nisab, multiply it with the current market value of the respective assets to get the zakah base. Multiply the zakah base by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

 

Zakah on Shares (Al' Ashum)

Shares in this context refers to money invested in companies or businesses. The amount of zakah payable will be derived from the current market value of the shares at the completion date of the haul and must exceed nisab. If the shares are sold before the completion of the haul, then no zakah is due. However, in the case of more than one portfolio of shares, which were purchased at different times, the determination of haul must be calculated separately.

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.

The Zakah Calculation Formula

2.5% x [Market Value of Shares]

Steps in Calculating Zakah on Shares

1.

Determine the completed haul for shares. Haul can be determined either by using the Islamic Hijri year or the solar year (Gregorian calendar).

2.

Determine the current market value of shares on the completion of haul.

3.

Deduct the amount borrowed (if any) for the purchase of the shares.

4.

Compare the current market value of shares with nisab (85gm of gold). If the price exceeds the nisab, multiply the zakah base by 2.5% (0.025) if the haul is based on the Islamic Hijri year or 2.5775% (0.025775) if it is based on the solar year.

 

Zakah on Livestock

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.
5. Nisab on Livestock is fixed on each category of animals.

The Zakah Basis

Type of Animal

No. of Animal Owned

Amount for Zakah

Cow

0-29
30-39
40-59
60-69
70

0
1 calf
1 cow
2 calves
1 cow and 1 calf

Goat

0-39
40-79
80-119

0
1 goat
2 goats

Camel

0-5
5-9
10-14
15-19

0
1 goat
2 goats
1 yearling camel

 

Zakah on Crops (Al Mahasil)

Applied Conditions

1. Muslim.
2. Full ownership.
3. Haul is completed.
4. Nisab is reached.
5. Only wheat, barley, raisins, paddy and dates are included; not fruits, vegetables, onions, etc.

The Zakah Basis

The rates are five percent (5%) on irrigated and ten percent (10%) on rain, river or spring-watered crops. Both calculations take place upon harvesting.

 

What Is Sadaqah?

Sadaqah is a voluntary act of giving alms 'fi sabillilah' (for the cause of Allah), by Muslims who want to contribute more than their obligatory zakah payment. Sadaqah may be given to mark or bring blessings to occasions such as weddings, anniversaries, personal success or even instances of sadness or bereavement. In short, sadaqah can be given during any period of happiness or sadness or as a sign of gratitude to Allah Subhanu wa Ta'ala.

In a Hadeeth Narrated Ibn Masud:
I heard the Prophet (S.A.W.) saying, "There is no envy except in two: a person whom Allah has given wealth and he spends it in the right way, and a person whom Allah has given wisdom (i.e. religious knowledge) and he gives his decisions accordingly and teaches it to others."

In another Hadeeth:
The Prophet (S.A.W.) said: 'Charity is a necessity for every Muslim'. He was then asked: 'What if a person has nothing?' The Prophet replied: 'He should work with his own hands for his benefit and then give something out of such earnings in charity.' The Companions asked: 'What if he is not able to work?' The Prophet said: 'He should help poor and needy persons'. The Companions further asked 'What if he cannot do even that?' The Prophet said 'He should urge others to do good'. The Companions said 'What if he lacks that also?' The Prophet said 'He should check himself from doing evil. That is also charity'.

 

What Is Qurban?

Literally, qurban is an Arabic word which means sacrifice. In other parts of the world, qurban is also known as qurbani. In Islam, qurbani/qurban is an act of worship performed by Muslims on specific days (10th, 11th or 12th of Thul hijjah in the Islamic calendar) whereby livestock are slaughtered and distributed for consumption to the poor, and friends and relatives of the performer.

Basic conditions of slaughtering during Qurban

1.

The slaughtering process must be carried out in accordance to the Shari'ah.

2.

The animal should only be slaughtered with a sharp knife or object. It is not permissible to use guns, electronic shock or carbon dioxide gas in the slaughtering process.

3.

The animal should be laid on its left side with its face pointing towards the Qibla and slaughtered quickly.

4.

Before the animal is slaughtered, "Bismillah" (in the name of Allah) must be recited.

5.

When slaughtering, at least three of the four veins in the throat of the animal must be cut.

6.

The animal must be completely dead (or cold) before it can be skinned and cut into pieces.

7.

The following animals can be slaughtered for qurbani:
a. Goats, either male or female, that are at least one year of age.
b. Sheep, either male or female, that are at least six months of age.
c. Cows, oxen, buffaloes that are at least two years of age.
d. Camels, male or female, that are at least five years of age.

8.

A person can offer either one goat or sheep, or one seventh of a cow, buffalo or camel as qurbani, i.e. 7 people can agree to offer a cow, buffalo or camel between them.

9.

Animals that are impaired (i.e. blind or crippled) cannot be slaughtered for qurbani.

10.

Qurbani can only be carried out during the period of qurbani (i.e. during the three days of Eid Adha - 10th, 11th and 12th of Zulhijjah). Animals that are sacrificed outside this period will not be considered as qurbani.