How to Calculate Zakat on Your Wealth

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In Islam, charity is given such high importance that it’s made obligatory on Muslims in the form of Zakat.  Being one of the major pillars of Islam, Zakat is the obligation enjoined upon every Muslim to pay out of their wealth in a specific proportion, as prescribed in the Holy Quran.

Zakat is meant to ensure equitable distribution of wealth in a society, so that both rich and poor can benefit from the blessings given to us by Allah. In simple words, Zakat is the balance of power in ownership of property or wealth.

The existence of insurmountable poverty and growing famine in the world points to the need of Zakat to be put into practice. People living in the rich societies might not realize how a small portion of their wealth can help and strengthen the entire community. Besides developing a sense of sacrifice in the hearts of those who are blessed by Allah, Zakat helps in building the society by circulating wealth in those who are less fortunate and cannot afford to have a better lifestyle.

Sadly, despite being aware of the importance of Zakat in Islam, many of us don’t know how to calculate Zakat in the manner prescribed in Quran. This article is aimed at helping readers in calculating Zakat and educating them about the steps to be followed therewith.

How To Calculate Nisab

Step 1 – Determining the Threshold

Zakat has to be paid by every Muslim adult who is mentally sane and in possession of an amount of wealth above Nisab of Zakat. The word ‘Nisab’ means minimum amount of wealth/assets or property that a Muslim owns. However, if your personal wealth is below the Nisab, you don’t owe any Zakat amount. In order to calculate Nisab, you either use the current price of gold or silver. It is highly advised to always check the current market rates of gold and silver as it fluctuates frequently.

Choose either silver or gold market rate, not both. Nisab value is the cash equivalent of 3 ounces/ 87.48 gram of gold or 21 ounces/ 612.36 grams of silver.  For example, if each ounce of silver is worth Rs. 1500, Nisab using the silver calculation would be Rs. 31,500 (Rs. 1500 X 21 ounces = 31,500). Hence, if your personal wealth is above 31,500, you owe Zakat.

Step 2 – Base your calculations on silver

Silver has a lower price than gold. Therefore, it is advised to base your Zakat on gold and not on silver. Using silver for Nisab means that you’re more likely to exceed the cut-off amount and be able to fulfill your moral duty by helping those who are less fortunate.

Understand and Calculate Your Zakat

Step 1- Identify your assets

Start calculation your assets, or what you own. This is the first step in figuring out how much Zakat you are obliged to pay every year. It is important to note here that you have to exclude the assets that you use in your everyday life, such as car, clothes, laptops etc. Zakat is based on what’s left of your wealth after you’ve taken out money to meet yours and you family’s living expenses.

For example, assets that are eligible for Zakat include savings, stocks, properties, cash, business income, gold, and silver.

Step 2 – Identify your liabilities

Your personal loans, college loans, or debt from credit cards are subtracted from your personal net worth. These outstanding amounts get deducted from your total zakat eligible assets.

For instance, if you took a loan of any type, then you have to look at how much you have to pay to your creditors, and not the whole outstanding debt. Add up how much you have to pay to your creditors every month, and multiple that amount by 12 to get the annual liability amount.

Step 3 – Determine your Zakat worth

In order to determine how much your Zakat worth is, subtract the liabilities from your zakat-eligible assets. For instance, if your total assets for the year are worth Rs. 10 lacs and your total liability is worth Rs 2 lacs, then your zakat rate is Rs. 8 lacs (Rs. 10 lacs – Rs. 8 lacs).

Step 4 – Compare Nisab with Zakat net worth

In order to calculate Zakat, you first have to compare Nisab with your zakat net worth. If your zakat net worth is more than the Nisab, you owe zakat. However, if it’s less than Nisab, you don’t have to pay any Zakat this year.

For example, your Zakat net worth is Rs 8 lacs and each ounce of silver worths Rs15,000, so the nisab using the silver calculation is Rs 31,500 (Rs15,000 X 21 ounces = Rs31,500). Hence, you have more than nisab, so you are obliged to pay zakat.

Step 5 – Give a percentage of your zakat net worth

If it’s obligatory on you to give a minimum of 2.5% of your Zakat net worth. However, if you’re financially capable of giving more, then try to shell out more than a mere 2.5% of your total assets.

For example, if your Zakat net worth is Rs. 8 lacs, you’ll give Rs. 20,000 (Rs. 8 lacs X 0.025 = Rs. 20,000). However, give more if you’re financially capable.

Step 6 – Donate to a reputable charity

In order to make sure that your Zakat is going to a fellow Muslim in need, it is advised to donate it to a reputable and registered non-profit organization. Ask people around you for recommendations. Ask the charity organization about how much of the donations made through Zakat reaches to the people who actually need it, and what is the process being used by all these organizations to distribute donations.

Whom To Pay Zakat

Now that we understand what is Zakat, and its various conditions and calculations, it’s time to understand who recipients of Zakat are, and how much zakat to give to them. In Islam, people who are entitled to receive Zakat are divided into several categories mentioned below:

  • The Fuqaraa

These are the people who do not have sufficient money to fulfill their basic needs, but are to shy to ask anyone for help. In Islam, it is advised to give Zakat to Fuqaraa in order to maintain a balance in the society.

  • The Masaakeen

These are the people who are extremely poor and are really in need of money. These people have the right to receive and ask for Zakat. Allah says, “But he has made no effort to pass on the path that is steep. And what will make you know the path that is steep? (It is) freeing a neck (slave). Or giving food in a day of hunger to an orphan near of kin. Or to a miskeen afflicted with misery.” (90:11-16)

  • Taleef-e-Qulub – Attracting Hearts

Zakat is also being given to people to attract the hearts of those who have been inclined towards Islam. Many scholars have agreed that this sort of Zakat should be given whenever there is a need for it. Many of us have seen people who embrace Islam become detached from their families due to non-acceptance and are sometimes deprived of a source of income. These are the people who have the right to receive Zakat.

  • Fi Riqab – Freeing Captives

Zakat can be given to buy a slave and then free him or her. These slaves when become free will be capable to worship Allah and then become useful members within the community.

  • Wayfarer – Ibn Sabeel

Wayfarer is a traveler stranded in a foreign country and is in dire need of money in order to achieve his goals or objectives before returning to his own country. This person is entitled to receive Zakat, considering the fact that the purpose of travel is lawful.

  • The Debtors – Ghamirin

Those who are in drowning in debts because of personal needs, such as the person who borrows money to buy food for his family. This person is entitled to receive Zakat.

  • Those who fight a holy battle – Fi-Sabeelillah

Those who have set out on a journey with a holy purpose to achieve or defend the country or religion, i.e., Jihad Fi Sabeelillah. Mujahid (rta) said to Abdullah bin Omar (rta) “I want to participate in a battle.” Abdullah bin Omar (rta) gladly offered: “Then I wish to help you monetarily.” Mujahid (rta) replied: “By Allah’s (swt) Grace, I am wealthy.” Abdullah bin Omar (rta) stated: “Brother! Your wealth belongs to you. I just want to spend my money in the cause of Jihad.” (Bukhari)

  • Those employed to collect Zakat – Amileen

Zakat can also be paid to the person who is responsible for the collection and distribution of money to the needy people.

Duration of Zakat Payment

It is important for us to understand that Zakat is not a one-time payment, but an annual duty. It’s due once in every lunar year or from the day you exceed the Nisab threshold, or from the day you last paid the Zakat.

If you’re aware of the fact that your personal wealth exceeds the Nisab threshold, select any date during the year to pay Zakat. It is advised to keep track of the date so that you know exactly when it becomes due to pay Zakat the following year. Many Muslims prefer to pay Zakat during Ramadan since it’s a sacred time when we try to get rid of our bad habits and read Quran and fasting from dawn to dusk.

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