The third pillar: zakaah (poor due, charity tax)

Society Religion & Philosophy
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Assalamo alaykum,

I suppose most of us give zakaah in Ramadan. I quickly looked up material to refresh my memory and thought I should share it as well.

**
The third pillar: zakaah (poor due, charity tax) **

Just asAllaah has created people with different colours, attitudes and levels of knowledge, so too their deeds and provision vary. He has made some of them rich and some poor, to test the rich as to whether they show gratitude, and to test the poor as to whether they are patient. Because the believers are a brotherhood, and brotherhood is based on compassion, kindness, love and mercy, Allaah has enjoined upon the Muslims zakaah which is taken from the rich and given to the poor. Allaah says (interpretation of the meaning):

“Take Sadaqah (alms) from their wealth in order to purify them and sanctify them with it, and invoke Allaah for them. Verily, your invocations are a source of security for them”[al-Tawbah 9:103]

Zakaah purifies and cleanses wealth, and purifies the soul from stinginess and miserliness. It strengthens the love between the rich and poor, takes away hatred, makes security prevail and brings happiness to the ummah happy.

Allaah has made the payment of zakaah obligatory upon everyone who owns the nisaab (minimum amount) for one year. The rate of zakaah on gold, silver, other metals and trade goods is one quarter of ten percent. On agricultural produce and fruits the amount is one-tenth if it is irrigated (by artificial means), and one-half of one-tenth if it is not irrigated (by artificial means, i.e., it is watered by rainfall or other natural means). Concerning an’aam animals (i.e., sheep, goats, cattle and camels) the details are explained in the books of fiqh… Whoever pays zakaah, Allaah expiates his sins thereby, and blesses his wealth, and stores up for him a great reward. Allaah says (interpretation of the meaning):

“And perform As-Salaah (Iqaamat-as-Salaah), and give Zakaah, and whatever of good (deeds that Allaah loves) you send forth for yourselves before you, you shall find it with Allaah. Certainly, Allaah is All-Seer of what you do”[al-Baqarah 2:110]

Withholding zakaah brings disasters and evils upon the ummah. Allaah has threatened those who withhold it with a painful torment on the Day of Resurrection. He says (interpretation of the meaning):

“O you who believe! Verily, there are many of the (Jewish) rabbis and the (Christian) monks who devour the wealth of mankind in falsehood, and hinder (them) from the way of Allaah (i.e. Allaah’s religion of Islamic Monotheism). And those who hoard up gold and silver (Al‑Kanz: the money, the Zakaah of which has not been paid) and spend them not in the way of Allaah, announce unto them a painful torment.

On the Day when that (Al‑Kanz: money, gold and silver, the Zakaah of which has not been paid) will be heated in the fire of Hell and with it will be branded their foreheads, their flanks, and their backs, (and it will be said unto them:) ‘This is the treasure which you hoarded for yourselves. Now taste of what you used to hoard’”

[al-Tawbah 9:34-35]

Concealing one’s zakaah is better than paying it openly in front of people, as Allaah says (interpretation of the meaning):

“If you disclose your Sadaqaat (almsgiving), it is well; but if you conceal them and give them to the poor, that is better for you. (Allaah) will expiate you some of your sins. And Allaah is Well-Acquainted with what you do [al-Baqarah 2:271]

When a Muslim pays his zakaah, it is not permissible for him to give it to anyone except those whom Allaah mentions in the aayah (interpretation of the meaning):

“As-Sadaqaat (here it means Zakaah) are only for the Fuqaraa’ (poor), and Al‑Masaakeen (the poor) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allaah’s Cause (i.e. for Mujahidoon — those fighting in a holy battle), and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allaah. And Allaah is All-Knower, All-Wise”[al-Tawbah 9:60]

Ref: The third pillar: zakaah (poor due, charity tax)

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Re: The third pillar: zakaah (poor due, charity tax)

zakat is on the value of your wealth that you have had for a year right, minus any liabilities.

I have some questions regarding zakat on 401K investments. its wealth but wealth that i dont have access to now..and if i do want access to it, after penalties and taxes it will be worth less than it is.

how have other ppl handled it?

Lets do it. Lets hit 3m posts in cafe
Lets do it. Lets hit 3m posts in cafe
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Re: The third pillar: zakaah (poor due, charity tax)

Hi Mr Rich :)

Well, Zakat is due on anything you have for a year (something you are rightful owner) and that it is not in your use (for instance, there is no zakat on property you live-in regardless of its value and any items you have bought for your use, not as investment or hoarding).

What I know, you are liable for zakat on all other assets that you own, regardless of you have them in your possession or not (even money you loaned to someone and hope/expect to get it back).

Thus, you would be liable Zakat on the value of your investment (at date you made your investment, though you can choose a day of your choice, like first of Ramadhan). Expenses, like tax or cost of recovering your investment (if the expenses is not built-in), or any other expense that might incur in recovering your investment, is unaccounted. However, if your investment has redeemable value then you can use redeemable value for working out zakat (not entering value).

Important: Well, there is controversial consensus (Ijtahad) regarding investment (as you should know, people have brought controversy in everything :))

I have number of NIT units (National Investment Trust units), a Pakistani government controlled open-ended mutual fund. Its face value is Rs 10.00 (though I bought it at much higher price). Government of Pakistan deducts Zakat on such investments at source. Now, government deduct Zakat 0.25 paisa (2.5 percent of face value) every year on each unit, regardless of what dividend it gives or what is the market value of those units.

For instance, at time it was 14 rupees ex-dividend (early 1995) and I believe it paid around Rs 2.35 dividend, still zakat was Rs 0.25 and when during 1999 (last days of Nawaz Shareef) the unit price was around 5.70 rupees (ex-dividend) what I remember dividend paid was around Rs 0.40 (40 paisa), still zakat was Rs 0.25.

Last July (2006) when it was around 41.45 rupees (ex-dividend redemption price) and paid dividend of Rs 5.80, still Zakat was Rs 0.25.

Thus, it seems that Pakistan government ijtihad (of Zia-ul-Haq time) on investment is that, zakat is only due on face value (that is Rs 10.00 for NIT) regardless of what price a person bought (real cost) and what is prevailing market price at the time of Zakat payment.

Surprisingly, according to Pakistan government consensus (ijtihad), they do not even take consideration of the time a person saved (time duration of the investment). For instance, if you invest in any government control investment (mutual fund or saving certificates) or put money in bank on last day of Shaban (any one would be stupid to do that), still Zakat would get deducted on first of Ramadhan.

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Re: The third pillar: zakaah (poor due, charity tax)

yqqqr u can have a 401K with 50 dollars in it so its not a question of being rich. I understand what you are saying but a 401K is different, so my question is specific to how something like taht would be treated, its tax deferred, so err u really dont know how much tax u will be paying on it because u dont know what the rates would be our what bracket u will be in when i withdraw, u also dont kow whether u will withdraw it before and pay penalties, and u dont kow what the investment mix and results would be ..so current value of this wealth is not a good gauge ..the time factor here is not one year until withdraw but 30 years..

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Re: The third pillar: zakaah (poor due, charity tax)

^^
My parents pay zakaat on jewelry and the money they have in their accounts i.e. savings and checking. My father also has a 401K account but since that money is not in his possession and he won't be able to access the funds till his retirement and he doesn't know the actual amount of money he will be getting from it; therefore he doesn't includes it in zakaat. I think zakat is on the money/asserts that is in your possession not on money/asserts that are not in your possession. For example if you loan your friend $10,000, will you pay zakat on it; of course not because you don’t have that money with you but your friend will.

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Re: The third pillar: zakaah (poor due, charity tax)

oh and if you withdraw it before the time, it will be considered a loan and you’ll have to pay it back.

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Re: The third pillar: zakaah (poor due, charity tax)

Things in Islam depend on intention. I do not know how 401K works, but certainly, you must be knowing, how much you contributed. Thus, you should pay on money that you contributed and expect that you will get at least what you contributed back. Thus, over last many years, you have contributed X dollars, you pay zakat on that X dollars. This year you contributed Y dollars, you pay zakat next year on increased amount, that is zakat on X + Y.

You should know that zakat become due on a thing you already paid zakat previous year. Thus, you will have to pay zakat on same asset (wealth) year after year, as long as you have that asset (or wealth).

Second way is: You can make intention that what you are contributing is in the name of Allah, to unknown. Since you do not know what or if you will get anything, make intention that IF you will get something you will pay zakat on that, then probably with such intention, zakat would be only due when you will receive anything 'if anything' in the year when you will receive anything (in this way, Zakat would be due only the year you received anything and then later years if you are left with anything).

As for the example given by Lusi:

[quote]
For example if you loan your friend $10,000, will you pay zakat on it; of course not because you don’t have that money with you but your friend will.
[/quote]

What I know, a person will have to pay zakat on that $10,000 too unless the loan is Qarz-e-Husna where the loan is given with intention that, if friend can repay and repay it back, JazakAllah and if friend cannot then loan is feeSabililah (forgiven in the name of Allah). If intention is that, one will take the loan back, whatever maybe, then zakat is due (as ownership of the money is not given and thus it is yours with all obligations on you). Friend will not be paying zakat on that money and if he does not pay back, still zakat will be due on you every year (until you forgive that loan amount, making it Qarz-e-Husna, or die).

Friend will never going to pay zakat on that amount because one do not pay zakat on borrowed money as one is not owner of borrowed money.

LIFEYYYYYYYYYY CONGRATZZZZZZZZZZZZZ
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Re: The third pillar: zakaah (poor due, charity tax)

I have two question regarding how to pay Zakah.

I have read that the minimum zakah required to pay is 2.5% of one's income. If I own a business, and the business has an annual net income of $65,000 (after expenses have been paid), the $65000 is added to the capital of the business. I withdraw $4000 per month from the capital ($48000 annually), for personal use. Would I pay 2.5% on what I withdrew from the business ($48000) or do I pay it on the net income of the business ($65000)?

Is there a time-line given in which we are suppose to pay (i.e. monthly, annually)? Do we pay it all together, or do we pay 2.5% each time we earn money?

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Re: The third pillar: zakaah (poor due, charity tax)

_Lahore_Ka_Cheetah:

[quote]
have two question regarding how to pay Zakah.

I have read that the minimum zakah required to pay is 2.5% of one's income. If I own a business, and the business has an annual net income of $65,000 (after expenses have been paid), the $65000 is added to the capital of the business. I withdraw $4000 per month from the capital ($48000 annually), for personal use. Would I pay 2.5% on what I withdrew from the business ($48000) or do I pay it on the net income of the business ($65000)?

Is there a time-line given in which we are suppose to pay (i.e. monthly, annually)? Do we pay it all together, or do we pay 2.5% each time we earn money?
[/quote]

According to what I know:

[First is that, sometime we use the word ‘pay zakat’ (me or anyone) but ideally what we should use is ‘give zakat’ as zakat is suppose to be given willingly for sake of Allah (as it is ibadah) and it is not payment (as payment is compulsion and not necessarily willingly, but zakat should be given willingly to be ibadah).

You do not give zakat on income but ‘wealth’ that you have with you for one year. Thus, what you took from your business that is 4000 dollars a month, you will not be giving any zakat on that as long as you are not saving from it and that saving stay with you for a year (saving becomes part of wealth). Thus, what you took out to spend and spent it, that is free from zakat.

As for the amount that you reinvested in business, that is 17000 dollars ($65000 - $48000), that is in reality your saving. But as you should know that after investment it will not equate to 17000 dollars extra wealth to you, as value of your business value would change with extra investment of that 17000, that could be more then 17000 or could even be nothing.

I believe that you should decide a suitable date for your zakat calculation. Probably first of Ramadhan could be a good date to start a good deed, though you do not need to have that date, you could decide any date (but make that date fixed, not changing year after year).

Thus, regardless of your reinvestment, you should value your business on that particular date (that could be your own rough estimate). That value should be the amount for your zakat calculation. Zakat calculation is 2.5 percent of all wealth a person possesses for a year (though if a person is too poor and do not have certain amount, there is no zakat).

Zakat is due on wealth [assets that is not in personal (not commercial) use, investments and savings] that you have with you for a whole year and it is repeat payment, that is zakat is payable each year for whatever you have as wealth [assets, investments and savings], even when you paid zakat last year on same wealth**. **Zakat is a ‘repeat giving, every year on same wealth as long as a person possesses that wealth].

There is big misconception amongst some that zakat like income tax is due on income but that is wrong. There is no zakat on income, only wealth. Hence, all income is exempt from Zakat.

Thus, for you, you should give zakat on your rough estimate market value of your business (and any other wealth you have), every year.

Only thing (if you want to be on the right side and still want to give no more then what is due), you can value your business one year and when you value next year, you give zakat on lower of the two value, as in reality, it is lower value that you had for a year.

Example (Proper or Accurate method): You decided that you give zakat in Ramadhan. Your business value in Ramdhan of 2006 was 200,000 dollars. In Ramdhan of 2005, it was 170000 dollars. Then you give zakat on 170000 dollars (as extra value was not with you for whole year). Next year (2007), if your business value is 190000 dollars, you give zakat on 190000 dollars (as even though last year your business was valued at 200000 dollars, it did not stay with you for whole one year, but only 190000 stayed with you whole year). And so on.

Eample (Convenient or Normal method - One will never give less zakat then what is due): You decided that you give zakat in Ramadhan. Your business value in Ramdhan of 2006 was 200,000 dollars. You give zakat on 200000 dollars. In Ramdhan next year (2007) your business value is 190000 dollars, you give zakat on 190000 dollars. And so on.

Regarding you second question: Zakat become due after a year and you should give that as soon as possible after zakat is due, preferably within one year from whenever it became due (though, there is no time limit). It is like karz of Allah on you and one should give it as soon as possible, before death. You can give it in instalment or in one go.

[Note: different rule applies for agricultural lands, agricultural incomes, and agricultural products].

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Re: The third pillar: zakaah (poor due, charity tax)

Zakat is an important pillar of Islam but unfortunately the Shiities dont pay this obligatory Charity

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Re: The third pillar: zakaah (poor due, charity tax)

^^
Too much generalization and this topic has nothing to do with shias and sunni.