Zakat is a form of almsgiving to provide for the poor and needy. It is one of the five pillars of Islam. The basic formula for calculating Zakat is 2.5% of wealth over the course of financial year. This percentage increases incrementally as a person becomes wealthier, eventually maxing at 20%.
How to calculate Zakat?
Zakat is a religious obligation for Muslims. The amount of Zakat one has to pay depends on the net worth of their properties and assets. In simple terms it is calculated as 2.5% of your excess wealth above the Nisab Threshold. This doesn’t include money that you need in order to pay for essential items and services. It relates only to excess wealth.
Who is eligible to Pay Zakat?
If what you own is more than Nisab, then it means you must pay Zakat that year. If it is less, then you don’t need to pay Zakat.
Who is eligible to receive Zakat?
Zakat is a percentage of an individual’s wealth given to the poor.
To be eligible to receive zakat, the recipient must be poor. A poor person is someone whose property, in excess of his basic requirements, does not reach the nisab threshold.
The recipient must not be part of your immediate family such as your spouse, children, parents and grandparents etc. but other relatives, however, can receive your zakat.
The recipient also must not be a Hashimi (descendant of the Prophet (peace be upon him)).
How to calculate zakat on gold?
Simply find out the total value of your gold and then work out what 2.5% of that is, and that will be your zakat for the gold you own. But remember you must also pay zakat on your other assets such as cash, any non-essential cars and homes.
How to calculate zakat on cash?
It is calculated as 2.5% of the total amount of wealth you own that is above the nisab threshold.
What is Nisab?
Nisab refers to the minimum amount of money or capital a Muslim must have before zakat becomes a duty payable on it. A person who has savings or other excess wealth equal to or greater than the current cash value of 3 ounces of gold (~87 grams) will need to pay Zakat.
When is Zakat due to be paid?
Zakat is due to be paid at the end of Ramadan, but before Eid-al-fitr. Muslims with wealth above a certain nisab are required to pay Zakat before this time.