Zakat in Islam is not just a charity, it is a yearly duty in Islam for eligible Muslims. It helps the poor and strengthens the community. It also purifies wealth. This guide explains everything you need to know about Zakat. You will learn who pays it, how to calculate it, who receives it and difference between it and sadaqah. Let’s break it down step by step.
What Is Zakat?
Zakat is an obligatory yearly charity for adult Muslims who have enough wealth to meet the Nisab threshold. It is one of the five pillars of Islam. Allah states in the Quran,
وَأَقِيمُواْ ٱلصَّلَوٰةَ وَءَاتُواْ ٱلزَّكَوٰةَۚ وَمَا تُقَدِّمُواْ لِأَنفُسِكُم مِّنۡ خَيۡرٖ تَجِدُوهُ عِندَ ٱللَّهِۗ إِنَّ ٱللَّهَ بِمَا تَعۡمَلُونَ بَصِيرٞ
“And establish prayer and give Zakat, and whatever good you put forward for yourselves – you will find it with Allah. Indeed, Allah of what you do, is Seeing.”
(Qur’an 2:110)
Zakat is an Arabic word. The word “Zakat” means purification or growth. Zakat meaning in Islam is "giving to charity" or "giving to the needy". Giving Zakat cleanses one's wealth and helps the community. The Quran states,
خُذۡ مِنۡ أَمۡوَٰلِهِمۡ صَدَقَةٗ تُطَهِّرُهُمۡ وَتُزَكِّيهِم بِهَا وَصَلِّ عَلَيۡهِمۡۖ إِنَّ صَلَوٰتَكَ سَكَنٞ لَّهُمۡۗ وَٱللَّهُ سَمِيعٌ عَلِيمٌ
“Take, [O, Muhammad], from their wealth a charity by which you purify them and cause them increase, and invoke [Allah‘s blessings] upon them. Indeed, your invocations are reassurance for them. And Allah is Hearing and Knowing”
(Qur’an 9:103)
Zakat helps the poor, stranded travelers, and other eligible groups. Zakat cannot be used for buildings. It must go directly to those in need. The Quran commands this in Surah At-Tawbah (9:60).
إِنَّمَا ٱلصَّدَقَٰتُ لِلۡفُقَرَآءِ وَٱلۡمَسَٰكِينِ وَٱلۡعَٰمِلِينَ عَلَيۡهَا وَٱلۡمُؤَلَّفَةِ قُلُوبُهُمۡ وَفِي ٱلرِّقَابِ وَٱلۡغَٰرِمِينَ وَفِي سَبِيلِ ٱللَّهِ وَٱبۡنِ ٱلسَّبِيلِۖ فَرِيضَةٗ مِّنَ ٱللَّهِۗ وَٱللَّهُ عَلِيمٌ حَكِيمٞ
“Zakat expenditures are only for the poor and for the needy and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler – an obligation [imposed] by Allah. And Allah is Knowing and Wise.”
(Qur’an 9:60)
Muslims are required to follow strict guidelines when distributing Zakat. This ensures that Zakat fulfills its purpose as a religious obligation. While Zakat can be given at any time within the lunar year, many Muslims choose to give it during Ramadan or Hajj, with some preferring the blessed night of Laylat Al Qadr for its great rewards.
But remember, Zakat-al-Mal, the obligatory annual donation, can be made at any time throughout the year. On the other hand, Zakat-al-Fitr (Fitrana) must be given during Ramadan, before the Eid prayer.
What Is Nisab?
Nisab is the minimum wealth a Muslim must have to be eligible to pay zakat. Prophet Muhammad (PBUH) set the Nisab at specific amounts of gold and silver. Today, people calculate it based on the market value of these metals. Since the value of silver and gold changes, the Nisab threshold usually changes every year. It also varies based on your location.
The Nisab ensures only those with surplus wealth pay Zakat. This protects and supports those struggling financially. The threshold is also called the Nisab limit.
Significance of Giving Zakat
There are many significance of giving Zakat. The most remarkable ones are,
Fulfills an Obligation
Zakat is a duty in Islam. It is the third pillar of Islam.
Narrated By Ibn ‘Umar: Allah’s Apostle said: "Islam is based on (the following) five
(principles):
1. To testify that none has the right to be worshiped but Allah and Muhammad is Allah’s
Apostle.
2. To offer the (compulsory congregational) prayers dutifully and perfectly.
3. To pay Zakat. (i.e. obligatory charity)
4. To perform Hajj. (i.e. Pilgrimage to Mecca)
5. To observe fast during the month of Ramadan."
(Sahih Bukhari Vol 1, Book 2, No 7).
A Muslim must give Zakat if their wealth reaches the nisab. It shows obedience to Allah’s command.
Ensures Social Justice
Zakat helps the poor and needy. It distributes wealth in a fair way. Zakat reduces the gap between the rich and the poor.
Builds a Strong Community
Zakat helps Muslims care for each other by sharing their wealth. It strengthens the bond between rich and poor. When people help each other, society becomes stronger.
Zakat Purifies Wealth
Zakat purifies a person’s wealth, freeing it from greed and making it truly meaningful. The Quran states this in Surah At-Tawbah (verse 9:103). Zakat not only purifies wealth but also enriches the heart, removing selfishness and opening the door to greater blessings. When you give, you don’t just help others—you invite more goodness into your own life.
Purifies the Soul
Zakat removes bad habits like greed. It helps people to care for others. It increases kindness in the heart. You feel peace when you help those in need.
Helps the Economy
Zakat helps spread wealth and prevents it from staying with just a few people. It puts money back into the community, allowing the needy to afford essentials like food and clothes. It helps build a fairer and balanced society.
Basic Rules of Zakat
There are basic rules for Muslims to give Zakat, it ensures that you complete the obligation properly. Let's see the details of Zakat’s rules and regulations.
Who Must Pay Zakat?
A Muslim must meet certain conditions to pay Zakat. They need to be an adult and sane. Their wealth must reach nisab. The nisab is 87.48 grams of gold (approx 3 ounces) or 612.36 grams of silver or equivalent wealth other than those which are daily necessities like a house for living. They must own this for a full lunar year. If their wealth is below the nisab, they do not need to pay Zakat.
How Much Zakat to Pay?
The required zakat amount is 2.5% of your overall wealth. This includes gold, silver, cash, savings, investments, and trade goods. Liabilities such as rent, mortgage, utility bills for the current month, and debts has be deducted before calculation. In some countries like Malaysia, Pakistan, and Saudi Arabia, zakat is like a tax. In others, it is voluntary but mandatory for Muslims. They need to do this on their own will.
Who Can Receive Zakat?
Zakat can only go to specific people. The Qur’an lists eight categories in Surah At-Tawbah (9:60). These include-
- the poor
- the needy
- zakat administrators are also allowed to use some of the funds for distribution purposes
- new Muslims,
- those striving to free themselves or others from slavery,
- people in debt,
- travelers in need, and
- those working in Allah's cause.
Zakat on Animals
Owning certain animals require you to include them in nisab calculation and pay zakat on them. This includes camels, cows, and sheep. Other animals require zakat only if they're used for trade. Mules and donkeys fall under this rule.
Other Important Rules
Zakat must be paid with the right intention. It should only be given to eligible people. Giving it to others will not fulfill your obligation.
How to Calculate Zakat?
There are rules for Muslims to calculate zakat. Always make sure that you calculate correctly before paying zakat. This way, you fulfill your duty properly. Here is a step-by-step guide to help you calculate your zakat correctly.
Step 1: Add Up Your Assets
Start by adding up all your cash, including what's in your bank and at home. Then, include the value of your gold, silver, investments, stocks, and business assets. If you receive rental income, add that too. Make sure you consider everything you've owned and held over the past year.
Step 2: Subtract Your Liabilities and Debts
Now, subtract any debts you owe from your zakatable wealth. Remember to only include loans or payments that are still due. Now debts can be of two types - short term (debt that you have to pay within a year) and long term (debt that spans over more than a year).
Short term liabilities include money you need to pay others, your rent, utility, bills, groceries etc. However, future payments like rent and bills for next month does not qualify as short term liability. In case of long term loans, there are two different opinions. According to one, you should only consider payments due within the next lunar year. However, some scholars suggest deducting the entire due amount of the long term debt. You may consult with an expert for right directions.
When you have the total debt amount on hand, deduct it from your zakatable assets to get the net zakatable assets. Check out this article about calculating zakat with debts.
Step 3: Check if Your Wealth is Above Nisab
After subtracting, check the current cash value of Nisab using gold or silver rates. If your total wealth is above Nisab limit and you've owned this for a full lunar year, you must pay zakat. If it is below Nisab, you do not have to pay.
Step 4: Calculate Your Zakat
Multiply your zakatable wealth by 0.025 or 2.5%. This is the amount you must give as zakat to the poor.
Calculating Zakat on Gold, Silver
If you have gold or silver, your Zakat is 2.5% of their current market price. For gold, the Nisab value is 87.48 grams or the equivalent market price of this amount of gold. For silver, it’s 612.36 grams or the market price of that amount.
First, you need to check the Nisab threshold. Weigh your gold or silver. Then find their current market value. If you do not have any other assets and the market value of your gold or silver reaches nisab limit, you need to pay zakat on these gold and silver.
This applies to jewelry, coins, and bars. Always check the latest gold and silver prices before calculating. Now calculate 2.5% of the total and that's your zakat.
If you own other assets, then you need to add all your assets together and check if that crosses nisab threshold. Now calculate amount of zakat following the steps mentioned above.
Calculating Zakat on Cash
Zakat on cash is easy to calculate. First, add up all your cash. This includes money in your bank and cash at home. Then, check if your total cash has reached the nisab threshold and if you've owned it for a lunar year. If it is, take 2.5% of that total. That amount is your zakat. This is only if you have cash as asset.
Reminder, if there's other assets that you've owned for a lunar year, then you have to consider all together when calculating nisab.
Calculating Zakat on Shares and Stocks
Calculating Zakat on shares is also simple. Muslim scholars have identified three common methods to calculate Zakat on shares:
- Market Value Approach
- Zakatable Assets Approach
- 25% Approach
However, before choosing a method, consider your investment intent. If you have a short-term investment where you're frequently buying and selling, use the Market Value Approach. But if you have a long-term investment like holding shares for future gains, either go for the zakatable assets method or the 25% approach.
1. Market Value Approach
This is the simplest method. It treats the total value of your shares like cash. You calculate zakat based on their current market value, not the initial purchase price. For example, if your $12,000 investment is now worth $18,000, you would have to pay zakat on $18,000. So include it in your asset calculation.
2. Zakatable Assets Approach
If you're holding shares long-term, you can calculate zakat based on the company’s liquid assets. These include things like cash, receivables, and market investments. For instance, if your shares are worth $18,000 and the company’s liquid assets account for 20% of its value, your zakatable amount would be $3,600. Then, you’d pay 2.5% on that, which is $90 (if this is the only asset you own). And if you have other assets, include this $3,600 in your zakatable assets.
3. 25% Approach
This method simplifies things by assuming that 25% of a company's assets are zakatable. So, with shares worth $18,000, you would calculate 25% of this amount, which equals $4,500. Add this amount with your assets for zakat calculation.
Additionally, zakat on stocks follows similar rules, depending on your investment intent. For short-term trading, where you're buying and selling stocks for quick profit, you need to consider the total value for zakatable assets calculations, including both the principal and the profit. However, for long-term investment, you have a few options. One method is to pay 2.5% of the zakatable assets of the company, which refers to the liquid assets that can be quickly converted to cash. Alternatively, you can pay 2.5% of the profit you earn from holding the stocks. Some scholars suggest paying 10% of the profit.
Following these guidelines will ensure your zakat is calculated correctly.
Calculating Zakat on 401K, Mutual Funds
Calculating Zakat on your 401k and mutual funds is simple. Zakat on a 401k is due when you withdraw the funds. To calculate it, check the balance of your 401k at the time of withdrawal and see if it meets the Nisab. Zakat is 2.5% of the total value.
However, if you've had the 401k for several years and the balance exceeded the Nisab, you'll need to pay Zakat for each year it applied. To make it easier, it's recommended to pay Zakat yearly.
For long-term investments like mutual funds, some scholars suggest zakat on profits only. Others recommend paying 2.5% of the total value. Consult an Islamic scholar for clarity.
Zakat Calculator for Silver
Here's a simple way to calculate zakat on silver:
Nisab for silver is the value of 612.36 grams of silver. If you have more silver than this amount, you are eligible to pay zakat.
Example:
You have 700 grams of silver for a lunar year, this is more than nisab threshold which is 612.36 grams of silver. Hence, you have zakatable asset. Now you need to add up all your assets and deduct any debt that you have to calculate total zakatable asset and calculate zakat on it. If this silver is your only wealth the calculation will be as below.
Suppose, the current silver price is $0.80 per gram.
Silver Value = 700 × 0.80 = $560
Zakat = 560 × 2.5% = $14.
So, if you have 700 grams of silver you will have to give $14 of zakat!
Misinformation Regarding Zakat
There are some common misunderstandings about zakat, which can lead to mistakes. Let's clear them up.
Only for the Poor
Many think Zakat only helps the poor. This is not true. Zakat also supports stranded travelers, those in debt, and others mentioned in the Quran. It serves multiple needs, not just poverty. And it also purifies wealth of the rich and gives them opportunity to help those in need, fulfill their obligation and draw them closer to Allah.
Not Required on Business Assets
Some believe zakat applies only to personal savings. This is not correct. Zakat also covers business assets. This includes inventory, profits, and other wealth that meets the nisab (minimum threshold).
One-Time Payment
Many think zakat is a one-time duty. It is actually an annual obligation. As long as your wealth stays above the nisab, you must give zakat every lunar year.
Given Only During Ramadan
Some believe Zakat must be paid in Ramadan. This is a very common misunderstanding. Zakat is due one lunar year after your wealth reaches the nisab, no matter which month it is. While giving in Ramadan brings more rewards, it is not a condition for paying zakat.
However, fitrana must be given in Ramadan before Eid prayers.
Covers All Charity
Many confuse zakat with general charity (Sadaqah). They are different from each other. Zakat is obligatory and has clear rules such as fixed zakat amount and eligibility criterion for receiving it. Sadaqah, on the other hand, is voluntary and flexible. Paying Be careful, sadaqah does not replace your zakat obligation.
Zakat vs Sadaqah
Zakat and Sadaqah both help people in need, but they are not the same.
Zakat is required for Muslims who have wealth above a certain limit (Nisab). It is 2.5% of their eligible wealth and must be given once a year to purify their money. Many give zakat during Ramadan.
On the other hand, sadaqah is a voluntary act of charity. There is no set amount or time to give. It can be money, helping others, or even small acts of kindness. Sadaqah Jariyah is a lasting charity that benefits both the giver and the receiver for a long time. In fact it is the only charity that rewards a Muslim even after their death. Know more about sadaqah.
Zakat increases devotion to Allah and purifies wealth. Sadaqah builds closeness to Allah. Both support the community and bring spiritual rewards.
Bottom Line
Zakat in Islam is simple. If you have enough wealth, you must give zakat to help others and purify your money. Just check your wealth, calculate how much zakat you need to give, and give it. Don’t overthink it. And remember, it’s not just for Ramadan. It’s a yearly obligation. It will lighten your heart and bring blessings to your wealth!