Elements of Zakat

Tajuddin Shu’aib

Zakat is one of the five pillars of Islam and a vital element in the religion of Islam. It is the twin sister of Solat.

Allah SWT Says:

"So establish regular Prayer and give regular Alms; and obey the Messenger; that you may receive mercy." [Surah An-Nur, 24: 56]

Allah also Says: "...Establish regular Prayer and give regular Alms, and loan to Allah a beautiful loan...." [Surah Al-Muzzammil, 73: 20]

"And they have been commanded no more than this: to worship Allah, offering Him sincere devotion, being true [in faith]; to establish regular Prayer and to practice regular charity; and that is the religion right and straight." [Surah Al-Bayyinah, 98: 5]

In a famous Hadith reported by 'Umar Al-Khattab, the Messenger of Allah SAW responded to Jibril and said: "... Islam is to testify that there is no deity but Allah and Muhammad is the Messenger of Allah, to perform the prayer, to pay Zakat, to observe fasting in Ramadhan, and to make pilgrimage to the house of Allah if you are able to do os...." (Bukhari and Muslim)

Who Should Give Zakat

The obligation of Zakat is mandatory on every Muslim who possesses the minimum Nisab, whether the person is man, woman, young, old sane or insane. Zakat in Al-Qur`an and Sunnah is general and does not exclude young or insane.

Allah stated that: "Of their goods take alms so that thou mightiest purify and sanctify them..." [Surah At-Tawbah, 9: 103]

Imam Ibn Hazim said that every Muslim young or old sane or insane needs to cleanse his or her wealth with Zakat because of generality of the evidence.

Anas bin Malik reported that the Messenger of Allah SAW said: "Trade with the money of the orphan, lest it is eaten up by Zakat." [At-Tabrani]

In another Hadith `Amru bin Shuaib related from his grandfather that the Messenger of Allah said: “Whoever is entrusted with money of an orphan should trade with it and should not leave it sitting to be used up by charity." [Tirmidzi]

The point of reference in these reports is that the Messenger SAW urged the trustee on the estate of people who due to age or other reasons cannot manage their own financial affairs, to invest it in a business that will yield a return and make it grow until they are in a position to do so themselves. For, if proper investment is not made with an orphan’s inheritance, it will be depleted by charity, thus leaving the orphan with little or nothing.

The Nisab

Allah has prescribed the minimum amount that is obligatory for Zakat in different ranges of properties, and that minimum amount is known as nisab. The reason for nisab is to ensure that no one is forced to give Zakat out of what he or she does not have, and that no wealth goes without Zakat. Nisab is also an insurance against the tyranny of the state to tax the poor and or the neediest as is the case in many countries. Nisab is a reference point for the average Muslim who is not sure whether he possesses the minimum wealth on which Zakat is obligatory. The wealthy need not worry about the Nisab. Zakat is obligatory on their entire wealth and must be paid out at the end of financial year that they set for their Zakat.

The Nisab Will Not Be Valid Unless It Fulfills Two Conditions

1. The amount that has reached Nisab must be the excess or surplus known as "fadil" from one's essential needs such as food, clothing, housing, vehicles, tools and machinery that is used in business. The essentials for living are exempted from Zakat.

Although what constitutes nisab may change from one country to another, the amount that is needed for the basic needs of living in different countries is very similar, because the market place determines the prices, whether it is an official market or a non-official market. In the poorest countries people do without or live below the poverty standard, and that is why many go hungry or without basic essentials.

However, we must realize that Zakat is an act of worship [‘ibadah] like Solat. The element of intention [niyyah] is necessary, and we should not overly rely on state agencies to determine for us the requirements of our religious duty. The so called the "consumption basket" [that is poverty level as determined the social security administration which are updated every fiscal year] may not be the same as what Islam considers minimum Nisab.

In the industrialized countries, the consumption basket may include items that are not necessarily essential, such as entertainment, extra clothing, and variety of food, eating in restaurant or eating at home, owning more than one car as opposed to having three cars in the driveway, drinking water as opposed to juices, eating regular food or special "health" food. This is why I believe it is essential that we do not lose site of the fact that Zakat is ‘ibadah of wealth, like solat and fasting. Non Muslims may consider all the things mentioned above as essentials while Muslims will not. Indeed, no Muslims in good standing will attempt to hide behind the label of consumption basket so as to evade Zakat.

Nisab eliminates the possibility of injustice or unfair treatment of the Zakat payer. To suggest that if we do not follow the rules of International Monetary Fund or the arbitrary figures of social security administration or department of agriculture we will be doing injustice to the Zakat payer is ludicrous.

2. Nisab must mature, that is the money is not liable for Zakat unless it has remained a full year in the possession of a person. This is the understanding of the majority of the scholars. Imam Abu Hanifah said: "What should be considered is the existence of nisab at the beginning and the end of the Zakat year set by the payer". It does not matter if the nisab money increases or decreases during the calendar year, as we will explain later.

This condition does not include farm produce, for it is due on the day it is harvested. Allah stated: "... But render the dues that are proper on the day that the harvest is gathered..." [Suah Al-Anam, 6: 141] According to Imam Al-`Abadi, Zakat money is of two kinds: one that by its nature can not be invested and Zakat of this category is due on the day of harvest. This includes all the farm produce that is liable for Zakat. The other is wealth that can be invested in the hope of a good return, like cash, gold or silver, because the opportunity is there that cash in one's hand can be invested for a good return. This includes currency investment, merchandise and livestock. Their Zakat is not due until they have matured in one full year.

The proof of this condition is the Hadith related by Ibn `Umar that the Messenger of Allah SAW said:

"He who acquires property is not liable for Zakat on it till a year passes." According to Ibn Rushd this is the understanding of the majority of scholars, including the four rightly guided Khalifahs.

Zakat of Salaries

The condition of yearly term maturity applies to the commodities on which Allah said Zakat is due, and this includes silver, gold, modern paper currency and livestock. Paper currency is analogous to silver; therefore, it takes the case of silver. There is no Zakat on salary, earned income from wage earners or professionals or independent contractors until such money matures in a full year. There is no such thing as paying your Zakat on the day you receive your paycheck. What the wage earner must know is that he or she can purify that money with charity [sadaqah] anytime they cash the paycheck.

Allah states:

"And in their wealth and possessions [was remembered] the right of the needy, he who asks and he who [for some reason] was prevented [from asking]." [Surah Adh-Dhariyat, 51: 19].

We can deduce from the concept of "yearly maturity" of wealth on which Zakat is due as encouraging, among other things, saving on the part of the Zakat payer, and enhances the chances for eradicating poverty, because if the poor receives his rightful share of Zakat there will be the possibility that he can take Zakat money and invest it and become a Zakat payer instead of recipient. This possibility will be lost if he receives few Zakat dollars every month. To say that the wage earner just brings his check home and spends everything on necessities and lives from check to check with nothing left over means the person is eligible for Zakat.

Using farm produce as analogous to salary for Zakat is wrong analogy. As Imam Al-`Abadi said, these are two different categories of money. $2, 500.00 cash can be invested by the person and expect a good return whereas it will be difficult to invest a bushel of corn. It can be traded as a commodity, which is what it is. This why we must know that analogy has rules that must be followed before it is applied. Certainly the jurists are unanimous that earned income, known as almal al-mustafadah, should either be added to existing money and wait until that amount reaches maturity and then give their Zakat; or if there is no money on hand the time one possesses this money, he or she should wait one full year before assessing it for Zakat.

There is consensus among Muslim scholars that it is mandatory on every believer who is financially able. Whoever knowingly denies this obligation, while he possesses the minimum amount, would be considered a disbeliever and a renegade from Islam. Whoever is stingy, or tries to cheat, is considered among the wrongdoers.

Zakat is mandatory on four categories of items.

1. Farm produce: Seeds and fruits, such as wheat, barley, rice, dates, raisins, cocoa, pistachios, coffee, and cashews. Allah SWT stated: "O you who believe, give of the good things which you have (honorably) earned, and of the fruits of the earth which We have produced for you..." [Surah Al-Baqarah, 2: 267] Also: "... But render the dues that are proper on the day that the harvest is gathered..." [Surah Al-Anam, 6: 141] Thus, these two verses and many others indicate that Zakat is due on farm products that reached the minimum amount [nisab]. No farm product is liable for Zakat unless it is a product that is considered as food and can be stocked or saved naturally without refrigeration. If the produce is perishable fruit, such as grapes, there is no Zakat. But if one sells them they will pay their Zakat on the profit earned when it matures.

The nisab is 612 kilos, which equals 1,346.40 lb. There is no Zakat on produce that is less than this amount. If the farm produce or crops grow dependant on rainwater, or without any man's labor or irrigation, Zakaat due is one-tenth of the total. If it is grown by irrigation, then the Zakat due is half of one-tenth of the total produce. There is no Zakaat on fruits like apples or oranges or vegetables which are perishable and need refrigeration for long storage, but they should be considered as any income if the profit earned from their sale reaches the amount of Zakat, then Zakat should be given.

2. Cattle: Including camels, cows, sheep and goats, that are freely graze and are raised for trade and production. For Zakaat to be obligatory, the number must reach the nisab. The nisaab of camels is five, of cows 30, of sheep and goats, 40. By freely grazing is meant the animal goes out to feed without the owner buying or bringing it feed or hay. If it is not a grazing animal, there is no Zakat in the stock by itself. The stock will, however, be considered as articles of trade, then will be assessed for Zakat as articles of trade when the profit earned from their sale reaches the amount by itself or in combination with other articles of the trade.

3. Merchandise and goods of trade and commerce: This includes anything that is obtained for the business of buying and selling: land, animals, food provisions, fabric, cars, spare parts, etc. This inventory is evaluated annually and assessed for Zakat, whether the value is the same as the amount spent on it, more, or less. The owners of grocery stores, like any other business, must evaluate every item and give their Zakat. Simple bookkeeping of inventory, orders, cash on hand, and credits, that is non-delinquent loans, will give one a good picture of the zakatable assets. But if one is unable to account for everything in the store or shop, he should assess it according to his ability until he is sure that his conscience is clear.

There is no Zakat on what is within one's dwelling or property which includes food, drinks, furniture, houses, animals, cars, clothes and shoes. The only exception is gold and silver. There is no Zakaat on assets from rentals or lease, whether they are apartment units, taxi cabs, etc. That is, there is no Zakat on the apartment units, buses or cars for rental like Cabs Company or trucks for rental or equipments. But there is Zakat on the proceeds or incomes from these rental assets if these assets reach the executable amount, either by themselves or in combination with other assets.

Business Activities

Many scholars are of the opinion that any business activity that brings any return to the entrepreneur or investor should be assessed for Zakat. If the activity has a prescribed nisaab, such as gold, silver or paper currency, that nisaab is applied for Zakat. But if the business has no declared nisaab, its nisaab is the nisaab of commerce, one reason being that most business activities are considered as commerce and because, in actual fact, it is not factitious business name, such as GM, Apple or GE that is taxed for Zakat, it is the individual investor. We do not tax cooperation’s such IBM, Apple, GM or Bank but the individual investors, share holders and owners of these corporations.

Indeed, there are enough rules in Zakat books to cover all types of business activity, be it cash or risk investment. If the business activity is analogous to commerce, it should be assessed the same rate as commerce. To subject the business to a different Zakat rate of 10%, which is the rate of farm products instead of its correct rate of 2.5%, the rate of commerce, is unfair and unjustified. Besides, there is no proof, even a weak one, to justify this unfair arbitrary taxation. The difference between 2.5% and 10% is high. The Zakat system is not like a state revenue collection, but Allah's ‘ibadah. However, if a business person decides to give more than 2.5% after deducting all the expenses including depreciation, Allah SWT will accept it from him.

4. Gold and Silver: Whether used for commerce or jewelry. Allah SWT states: "...And there are those who bury gold and silver and spend it not in the way of Allah: announce unto them a most grievous penalty. On the day when heat will be produced out of that [wealth] in the fire of hell, and with it will be branded their foreheads, their flanks and their backs. This is the (treasure) which you buried for yourselves: taste you, then, the [treasures] you buried." [Surah At-Tawbah,, 9: 34-35]. By hoarding is meant refusal to give it in the path of Allah, which includes Zakat.

In a Hadith reported by Abu Hurairah, the Messenger of Allah SAW said: "For the owner or possessor of gold and silver who does not fulfill its obligation, on the Day of Resurrection it will be cast into sheets of fire and be branded on his forehead, side and back. Whenever it cools it is to be repeated for him in a day whose length is the length of fifty thousand years, until the judgement is rendered among the people." [Muslim]. By its obligation is meant assessing it for Zakat. In another version: "No possessor of a treasure who does not give its Zakat."

Zakat is mandatory in gold and silver, irrespective of its form: in coins, raw or nugget, or jewelry for wearing, or for rent, because of the generality of evidence of Zakat without any detail. In a report by Abdullah bin `Amr bin `As, he related that a woman came to the Messenger of Allah with her daughter. On the daughter's wrist were two heavy gold bracelets. The Messenger asked her, "Do you pay Zakat on this?" She replied, "No." The Messenger said: "Would it please you that Allah will encircle you with two bracelets of fire?" The reporter commented that she took them off and threw them down in front of the Messenger, and said: "They are for Allah and his Messenger." [Ahmed and Tirmidzi].

The Messenger's wife reported that: "The Messenger entered into my house and saw in my hand a huge ring made of silver, so he asked, `What is this?' I replied, `I made them to beautify myself for you, O Messenger of Allah.' He inquired, `Do you give their Zakat?' I said, `No,' or `Allah willing.' He said: `It will suffice you in the hellfire.'" [Abu Dawud].

Zakat is due on gold when it reaches the amount of [nisab], which is 20 Dinar. According to a hadith, the Messenger said: "No Zakat on you is due until it reaches 20 dinaar." [Abu Dawud]. The Islamic dinar [currency] is one mithqal, a unit of weight which weighs four and one quarter of a gram. Thus, the nisab is 85 grams.

Similarly, there is no Zakat on silver until it reaches five oqiyah, because the Messenger SAW said: "There is no Zakat on less then five oqiyah." [Muslim and Bukhari] Oqiyah is equal to forty Islamic dirhams. The nisaab is 200 dirhams. One dirham is equivalent to 595 grams. The zakatable amount in both the gold and silver is a quarter of a tenth only.

Paper Currency

There is Zakat on modern paper currency because it is equivalent to silver. During the early days of Islam, silver and gold were the currency of exchange minted into dirham for silver and dinaar for gold. Silver, not gold, had a larger circulation. Thus many scholars are of opinion that silver should be the standard for the paper currencies of today because that is more advantageous to the Zakat payer, as it raises the minimum nisab whereas gold lowers it. Although both metals are no longer circulated, they are still considered as a security against ever fluctuating paper money.

Silver should be used as a standard to assess Zakat annually, not paper currency, even if the currency is hard currency like the US dollar, Yen and Deutch Mark or Pound Sterling. These currencies are backed by political decisions that may not have anything to do with the economy, the value and strength of this paper money depends largely on all haram usury system of interest rates.

Thus, the Zakat payer should look up in the local newspaper's financial or business section for the price of silver which is currently about $3.82. per ounce. The nisab, then, is 596 x .04=28.80 ounce multiplied by$3.82= 90.91. Therefore. The nisab is about $100.00.

The nisab should be based on the market value of the currency. If the money is hard currency, there will be no problem, but if the money is a non-marketable currency, like most currencies in the third world countries, the nisaab should be based on the black market, which realistically reflects the value of the currency on the money market. In any case, the silver rate should be used to assess the Zakat.

If the nisab is determined, the zakatable amount is 2.5%, or .025 multiplied by the amount. For instance, if the zakatable amount is $56,000.00 it will be 56,000. X .025 = $1,400.00.

Zakat is due on gold, silver, and or paper currency, whether it is cash in hand or credit in the hands of borrowers. Zakat is due on debts or cost of merchandize or rental money. If the borrower is a wealthy person that you know will pay back the debt, the lender [that is Halal lending free of usury] should include that money in the assessment and give its Zakat. However, one can delay Zakat on a loan until he receives payment, then return its Zakat for the past years that he was unable to assess for Zakat. If the borrower is poor or is refusing to pay the debt, there will be no Zakat on the money until the lender receives the money. Then he will assess it for Zakat of one past due year, but there will be no Zakat in the years before that.

There is no Zakat on precious stones such as diamonds, or metals such uranium, regardless of their value. Gold and silver, of course are assessed for Zakat. However, if a person possesses any of these stones or metals, he should give their Zakat like any other articles of trade. If a person possesses diamonds or any other precious stones as an edge against inflation or for ornaments, there will no Zakat on these.

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See: Zakat.3