Understanding Zakat

What is Zakat?

Zakat is an Arabic term that means purification. When we have money in savings that lasts with us for more than a year, we take 2.5% of that savings and give it away to the poor and needy and those categories outlined in the Quran.

Who can I pay my Zakat to?

Zakat is to be given to eight categories of people mentioned in Surah Taubah 9:60:

1. 1. The needy,
2. 2. The poor,
3. 3. Those collecting and distributing Zakat,
4. 4. Those whose hearts need softening,
5. 5. Those in prison,
6. 6. Debt relief,
7. 7. in God’s path,,
8. 8. and helping the travelling who are stranded.

What is Nisab?

Nisab is an Arabic word that essentially means a portion. It is the amount of money you must have in order to be obligated to pay Zakat. If you don’t have that amount of money in savings, then you don’t have to give charity this year. Nisab is either 85 grams of gold, 595 grams of silver, or their equivalent values in cash. In modern times, it is prescribed to use the silver Nisab when calculating Zakat.

Why do we use silver Nisab?

The Nisab prescribed during the time of the Prophet, peace and blessings be upon him, was either 85 grams of gold (known as dinar at the time) or 595 grams of silver (known as dirham at the time). The dinar and dirham were interchangeably used in the markets in the Prophetic era. The exchange rate was 1:10 at the time and therefore the Zakat payer ended up paying the same amount whether they chose silver or gold Nisab. There is, however, a stark difference between silver and gold Nisab today and therefore the majority of scholars suggest the use of silver Nisab.

Who pays Zakat?

Zakat is due from any Muslim, young or old, male or female, on the money that is held in savings for one calendar year or more.

What do I pay Zakat on?

The following are considered “Zakatable”:

• • Gold & silver
• • Money in any currency
• • Cryptocurrency
• • Stocks/shares
• • Fixed assets for investment
• • Tradeable assets owned by your business
• • Crops and herded animals

Do I have to pay Zakat on gold and silver jewelry?

Yes, Zakat is paid on gold and silver jewelry. This is regardless of whether you wear it or keep in the safe as an investment. If it is more than the nisab, Zakat is paid on any gold or silver you have.

Do I have to pay Zakat on my retirement funds?

Depending on where you live, your retirement fund may have a different name (401K, Roth IRA, RRSP, etc). Zakat is not paid on your retirement fund or any account to which you do not have access, until you cash out without penalty. At that time, you would pay Zakat for one year.

Can I pay Zakat to my spouse or relatives?

As a general rule, you may not give Zakat to anyone you are obligated to support financially. For a man, this includes his wife, his children, and his parents. Therefore, a man can not pay Zakat to his wife, since he is obligated to provide for her. A woman, however, is not obligated to financially maintain her husband. She may give Zakat to her husband only if he is in need and falls under one of the above eight categories. For both men and women, your Zakat can be given to your siblings, cousins, uncles, and aunts.

Can I pay next year’s Zakat in advance?

If you know that your earnings and savings will be the same next year, you may pay your Zakat in advance for that year, along with your Zakat for this year. However, if your earnings and savings change such that you owe more, you will need to pay the difference.

What is Zakat al-fitr?

Zakat al-Fitr is paid as an expiation for the sins and mistakes we commit during Ramadan. It is paid as 2.5kg (or 5lbs) of wheat, dates, rice, etc. You may pay the cash value of rice if you like.