Zakat is an Islamic financial concept that mandates individuals to annually contribute a portion of their wealth to charitable purposes. This obligatory practice is considered a form of worship and is compulsory for most Muslims across nations. By donating excess earnings to the less fortunate, Zakat serves to cleanse yearly income beyond necessary sustenance for oneself and family.
To qualify for Zakat, the recipient should be impoverished or in need. Poverty is defined as not meeting the Nisab threshold due to excess property beyond essential needs. Zakat cannot be given to immediate family members—spouse, children, parents, and grandparents—but can be given to other relatives.
The wealthy, except those involved in the Zakat administration:
Able-bodied poor individuals who have the capacity to work but refuse to do so.
Those who are heretical, apostates, or anyone who actively participates against Islamic beliefs.
Spouses and descendants cannot be recipients of Zakat.
There are 2 main types of Zakat: Zakat ul Mal and Zakat ul Fitr. Zakat ul Mal means ‘Zakat over one’s wealth,’ which is a small portion of wealth given to the poor for their financial needs. Zakat ul Fitr, also known as ‘Fitrana,’ is obligatory for all Muslims, with enough food for a day, irrespective of age or financial standing.
Zakat amounts to 2.5% (or 1/40) of a Muslim’s total wealth, exceeding the Nisab threshold. It is calculated and paid annually.
Zakat is payable at a rate of 2.5% on all cash and bank balances, including savings, current, or fixed deposit accounts. The amount should remain in the bank for a year.
Zakat is calculated at 2.5% of the market value on the Lunar valuation date. The prevailing market value during the calculation date is favored over the purchase price by most scholars.
