In a previous article, we discussed generally Philanthropy in Islam and if you haven’t seen it, you can check it out HERE.
In this article, we would be giving a detailed description of the Islamic Philanthropy Model “Zakat” and what it entails.
WHAT IS ZAKAT?
There is always an increase in donations with the commencement of the holy month of Ramadan. A major contributor to these increased donations is Zakat. One can pay the Zakat money at any time during the year. However, to double the rewards, Muslims usually pay the Zakat money in the holy month of Ramadan. In today’s discussion, we will be taking you through the Frequently asked Questions (FAQ) on Zakat and on how to calculate Zakat on the property that you have.
‘You shall observe the Salah and give the obligatory charity (Zakat) and bow down with those who bow down.’ (Qur’an 2:43)
Zakat is the third pillar of Islam after Solat (Prayers). Other Pillars include Iman (Belief in Allah), Sawm (Fasting) and Hajj (Pilgrimage). Zakat is an obligatory act of charity amounting to 2.5% of a Muslim’s annual savings. It is intended to purify our wealth, not only physically, but also spiritually. It purifies our heart against selfishness as well as ensuring that society’s poorest are protected against hunger and destitution.
A common misconception is that Zakat is a form of tax. However, it is a spiritual obligation in which one will be accountable to Allah directly. Zakat plays a key role in supporting the poorest in the community, through providing them with essential aid as well as helping them come out of a life of poverty.
WHO HAS TO PAY ZAKAT?
You must pay Zakat if, firstly, you are an adult Muslim of sound mind, and secondly, you have possessed the minimum amount of wealth (known as Nisab) for one lunar year.
To determine the Nisab, there are two measures: either gold or silver.
Gold: The Nisab by the gold standard is 3 ounces of gold (87.48 grammes) or its cash equivalent. This is approximately N2,200,993.86 for gold on 25th July 2021, but will vary with the market value of gold.
Silver: The Nisab by the silver standard is 21 ounces of silver (612.36 grammes) or its equivalent in cash. This is approximately N228,061.4 on 25th July 2021.
Abdullah, it is also important that Nisab must be maintained for one lunar year for Zakat to be required and must be paid as soon as it is due. Your Zakat year therefore starts on the date your wealth first equaled or exceeded the Nisab and should be calculated on that date for each subsequent year.
WHAT PROPERTIES CAN ZAKAT BE PAID ON?
Zakat should be paid on wealth rather than income. For Example, if Abdullah who earns N1,000,000 (One Million Naira) a year and has N200,000 (Two Hundred Thousand) as part of his yearly savings, Abdullah would have to calculate his Zakat from the N200,000 in his savings as opposed to his yearly income.
Zakat is not just paid on the savings in your bank account. You need to pay Zakat on other types of wealth, such as:
- Gold and silver
- Cash held at home or in bank accounts.
- Stocks and shares owned either directly or through investment funds.
- Money lent to others.
- Business stock in trade and merchandise
- Agricultural produce
- Livestock animals such as cows, goats and sheep
- Property owned for investment purposes.
WHAT SHOULD ZAKAT BE SPENT ON?
There are seven types of people who can receive Zakat according to the Quran. These are:
- The poor.
- The needy.
- Those in debt.
- Those in the cause of Allah.
- Recent reverts to Islam.
- Those distributing Zakat.
- Those in captivity (The Noble Qur’an, 9:60)
THINGS TO NOTE WHEN PLANNING FOR ZAKAT
- When planning to observe Zakat, Muslims should ensure that their Zakat would be used to support disadvantaged communities in the fight against poverty. Muslims should also ensure that it can be used towards improving education, the environment, health, food security and more.
- Zakat is a religious obligation, ordering all Muslims who meet the necessary criteria to donate a certain portion of wealth each year to charitable causes.
- Zakat is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
- Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5%, or 1/40 of a Muslim’s total savings and wealth.
- If personal wealth is below the Nisab during one lunar year, no zakat is owed for that period.
- Zakat is not paid on wealth used for debt repayment of living expenses such as clothing, food, housing, transportation, education, etc.
In conclusion, At Fiduciary Services Limited, we understand the importance of Zakat and the technical difficulty that may arise when planning for your Zakat. As such, we help Muslims plan their Zakat and take the stress off them of fulfilling the requirements as to recipients. Please reach out to our Islamic Estate Advisors and we will get you started on fulfilling an important Pillar of your Faith.