Chapter on Zakat

Zakat Payment of a percentage of a Muslim’s

income/properties to an authorized zakat institution through a zakat collector (‘amil) for distribution to other needed muslim as specified in the syariah

One of the 5 pillars of Islam; obligatory (mandatory)

It is wealth purification, not found in conventional personal financial planning

Zakat is defined as a religious obligation of a

Muslim by setting aside a certain sum of money to be contributed to the receipient

is an act of worship through expenditure of Muslim’s wealth with the ultimate objective to win Allah’s pleasure (Yulyadi Arnabim)

paying a sum of money by a Muslim, after meeting certain condition, to support specific categories of people

Zakat - Wisdom and significance zakat is obligatory alms (sadaqah?) zakat means purification and growth, wealth

purification is fundamental in Islam God will replace and increase wealth that is

purified through zakat real owner of wealth is God, we are only

trustees and must manage wealth according to God’s command where one must set aside for those in need through zakat or sadaqah

zakat and sadaqah help the poor, feed the hungry, remove pain from the deprived brothers

those who refused zakat is a subversive and must be fought or receive capital punishment

Importance of zakat

purifies the wealth and assets of the people a certain percentage of wealth is distributed

immediately in the right manner, because the owner no longer has moral or legal possession of that percentage

if one fails to pay zakat, he is retaining wealth that does not belong to him this is corruption

the unlawfully retained percentage makes the whole lot impure and endangered

Zakat payment Zakat is the amount of money that every

adult, mentally stable, free, and financially able Muslim, male and female, has to pay to support specific categories people

Other condition: a) has met haul ( a time span of one lunar year passes with the money in owner’s control) b) rate of 2.5% (or 1/40)c) reached the nisab (minimum amount)

Zakat – Types and calculation

Zakat on Income There are 3 ways to calculate zakat on

income:   2.5 % of gross income per year After deducting basic expenditure After considering actual expenses to bear

Example:Sources of Income: Salary X

Allowance X

Bonus X

Others X

Total Income (A) XX

Allowable Deductions: Self Y

Spouse Y

Children (RM1,000 X 3 (example) ) Y

Contribution to parents Y

Contribution to EPF (11% of gross income) Y

Deduction to LTH Y

Total Deductions (B) YY

Net Income for Zakat payment: (C) (take A – B) ZZ

Amount exceeded the nisab of RM 6,400 (example)

Zakat payable (C x 2.5%)

Zakat on Savings

Savings is defined as amount of money saved in the savings account, fixed deposits (investment account), current account, ASB and any other types of savings in a bank or other savings institutions.

Zakat payable is based on the lowest balance for a period of one year. The balance amount must met the haul and exceeded the nisab after deducting the interest/dividend except al wadiah account

Example:Date Debit (RM) Credit (RM) Balance (RM)5 Jan 2010 10,000 10,00025 Apr 2010 1,500 8,500

7 Jun 2010 900 7,600

30 Jun 2010 300 (Interest) 7,90015 Aug 2010 700 7,200

30 Sept 2010 1,000 8,200

10 Nov 2010 500 8,70015 Dec 2010 1,000 7,700

The lowest balance in the statement is RM 7,200 and has exceeded the nisab of RM 6,400 for a full one year period. The haul period taken here is from 1st Jan to 31 Dec 2010.Therefore, zakat calculation as follows: Lowest balance = RM 7,200 – 300 (Interest)* = M 6,900Zakat payable = RM 6,900 x 2.5% = RM 172.50 * any income from conventional account has to be deducted

The zakat on savings calculation if depositor has more than one savings account  If an individual has more than one account,

he has to add up all the lowest balance of each account. Zakat is payable if the total amount exceeded the nisab amount.

For example:

The lowest balances for the haul period for 3 accounts are as follows:

Example: The lowest balances for the haul period for 3 accounts are as

follows:  Account 1: RM 3,000

Account 2: RM 5,500Account 3: RM 2,500

  Total amount = RM 11,000 

Zakat payable = RM 11,000 x 2.5% = RM 275 

# If savings are made in a fixed depository type of accounts, the zakat is payable on the principal amount only.

  For example: If principal amount in the Investment Account is RM 15,000, then the zakat payable = RM 15,000 x 2.5% = RM 375

Zakat on Business Two ways of calculating zakat for

business income: Growth Model (Kaedah Model

Berkembang)

Based on owner’s equity on the business entity, sources of financing and profit or losses

Example:Owners’ equity xxx

Long-term liabilities xxx xxxx

Less: Fixed assets xxx

Current assets xxx xxxx

xxxx

Add/less: Profit/loss xx

Business wealth that is subjected to zakat payabale

XX

Working Capital (Kaedah Model Modal Kerja)Based on the value of current assets minus short-term obligations plus adjustments

Zakat on Gold Gold and silver are metals that are subjected to zakat. The obligation to pay

zakat on these two items is justified by the command stated in at-taubah verse 34-35.

  Conditions of calculation for zakat on gold:

Determine the ‘uruf (nisab – minimum amount that is subject to zakat). Find the current price of gold per gram.   The zakat payable for gold is divided into two situations:  Gold owned as women accessories/adornments/decorations This is a situation where gold is purchased by women and used as

accessories on them. Thus zakat is payable if the amount of gold has exceeded the ‘uruf (nisab amount for gold if it is for decorations). If the amount of gold is less than the ‘uruf amount, then the individual is NOT obligated to pay zakat. The ‘uruf is the customary usage in an area and for the state of (example) Selangor the ‘uruf is 800 gram. (For some states the ‘uruf amount can be in ringgit amount). If the amount worn by a woman is more than the ‘uruf than one has to pay zakat.

Example: Zakat payable = total amount of gold owned x current price of gold per

gram x 2.5% Illustration: Zainab is wearing gold accessories in the amount of 1000 gram. The

value of gold is currently RM 120 per gram. In this situation she owns gold amount that is exceeding the minimum amount (‘uruf) of 800 gram.

Therefore, the zakat payable = 1000 gram x RM 120 x 2.5% = RM 3,000

   Gold owned as savings This is a situation where gold is owned or used other than as

accessories such as owning gold in the form of currencies, savings, house accessories, minerals. The nisab amount is 85 gram.

Zakat payable = total amount of gold owned x current value of gold per gram x 2.5%

Zakat on Silver  Zakat on silver is obligated to be paid

regardless of whether it is worn for accessories or kept as decorations at home, the calculation is based on the total value of silver owned. The nisab for silver is 595 gram.

   Zakat payable = total amount of silver owned

x current value of silver per gram x 2.5%  

Zakat on share/investment  Zakat on shares or investment is divided into 2: If shares are owned until the end of the haul period

and met the nisab, it will be 2.5% of the lowest value.

  Zakat payable = no. of shares owned x (current

price or purchased price, whichever is lower) x 2.5 %   If shares are traded during the haul period (and met

the nisab), it will be 2.5% of the capital gain. Zakat payable = 2.5% x capital gain  (Capital gain = selling price – purchase price

Zakat on Employees Provident Fund (EPF) (KWSP)

Amount of money kept at EPF is subject to zakat because of the concept is similar to savings but the withdrawal is not as easy as the bank’s savings account. Zakat on EPF, however, is only imposed upon complete ownership which when the owner make a withdrawal from EPF. Thus, the zakat payable is based on the amount withdrawn from EPF.

Zakat payable = Amount withdrawn x 2.5 % 

Methods to pay Zakat The payment of zakat nowadays is made simple with the advance on technology. One

may not necessary to go to see the ‘amil to deliver the cash but there many options of zakat payment mode as follows:

Salary deductions Salary deductions can be made by giving instruction to employer to deduct a percentage

of your salary monthly (a monthly deduction table is available) and send contribution to the selected collection centre.

At specified collection counters Payment can be made at (i) Post Office counters and (ii) Bank counters – at the appointed

banks Electronic-banking Various e-banking methods are available such as: Internet banking Banks’ ATMs Using credit cards – the acceptable card of selected banks Short Messages Service (SMS) Financial Process Exchange – FPX of selected banks Phone banking Others - Through the mosque system – ‘Kiosk Maju Masjid’