What Is Zakah on Wealth?

Zakah on wealth is the amount required by Islamic law from zakatable property when the conditions of obligation are fulfilled. The rate for cash, gold, silver, and trade goods is one-quarter of one-tenth, meaning:

2.5% of zakatable wealth, or zakatable wealth divided by 40.

Someone upon whom zakah is due on 10,000 units of currency pays 250. Someone upon whom it is due on 40,000 pays 1,000.

It is not enough for a Muslim to donate an unspecified amount and then call it zakah. The person must identify the wealth on which zakah is due, calculate the required amount, and intend zakah when paying it.

Conditions for Zakah on Cash and Similar Wealth

Zakah on this type of wealth becomes obligatory when the following conditions are fulfilled:

• The wealth is under the Muslim's settled ownership, and the person is generally able to dispose of it.
• It is a type of property on which zakah is due, such as cash, gold, silver, or trade goods.
• It reaches the Islamic nisab by itself or together with compatible zakatable assets that may be combined with it.
• A complete lunar year passes while it remains at or above the nisab, for property that requires a hawl.
• It is not an item used for personal needs and not intended for sale, such as the home one lives in, the vehicle one uses, or household furniture.

The hawl meant here is the Hijri lunar year. Crops and fruits, however, are subject to zakah at harvest and do not wait for completion of a hawl.

What Is Nisab?

Nisab is the minimum threshold at which the hawl begins. If the wealth remains at or above the nisab until the hawl is complete, zakah becomes obligatory.

The original nisab amounts for gold and silver are:

• Gold nisab: twenty mithqals, estimated by many contemporary scholars as approximately 85 grams of pure 24-karat gold.
• Silver nisab: two hundred dirhams, estimated as approximately 595 grams of pure silver.

Ali ibn Abi Talib, may Allah be pleased with him, reported that the Prophet, peace and blessings be upon him, said:

"إِذَا كَانَتْ لَكَ مِائَتَا دِرْهَمٍ، وَحَالَ عَلَيْهَا الحَوْلُ، فَفِيهَا خَمْسَةُ دَرَاهِمَ، وَلَيْسَ عَلَيْكَ شَيْءٌ - يَعْنِي فِي الذَّهَبِ - حَتَّى يَكُونَ لَكَ عِشْرُونَ دِينَارًا، فَإِذَا كَانَ لَكَ عِشْرُونَ دِينَارًا، وَحَالَ عَلَيْهَا الحَوْلُ، فَفِيهَا نِصْفُ دِينَارٍ، فَمَا زَادَ فَبِحِسَابِ ذَلِكَ". قال الراوي: "فَلَا أَدْرِي أَعَلِيٌّ يَقُولُ: فَبِحِسَابِ ذَلِكَ، أَوْ رَفَعَهُ إِلَى النَّبِيِّ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ". وفي رواية جرير بن حازم زيادة مرفوعة: "لَيْسَ فِي مَالٍ زَكَاةٌ حَتَّى يَحُولَ عَلَيْهِ الحَوْلُ".

Meaning: "When you have two hundred dirhams and a hawl passes over them, five dirhams are due. Nothing is due from you in gold until you have twenty dinars. When you have twenty dinars and a hawl passes over them, half a dinar is due, and whatever exceeds that is calculated proportionally." The narrator said, "I do not know whether Ali said, 'calculated proportionally,' or attributed it to the Prophet, peace and blessings be upon him." A narration from Jarir ibn Hazim includes the attributed addition: "No zakah is due on wealth until a hawl passes over it."

Reported by Abu Dawud and authenticated by al-Albani. This hadith combines the foundations of the gold and silver nisab, the requirement of a hawl, and the rate of one-quarter of one-tenth.

The Prophet, peace and blessings be upon him, said:

"لَيْسَ فِيمَا دُونَ خَمْسِ أَوَاقٍ مِنَ الوَرِقِ صَدَقَةٌ، وَلَيْسَ فِيمَا دُونَ خَمْسِ ذَوْدٍ مِنَ الإِبِلِ صَدَقَةٌ، وَلَيْسَ فِيمَا دُونَ خَمْسَةِ أَوْسُقٍ مِنَ التَّمْرِ صَدَقَةٌ".

Meaning: "There is no zakah on less than five awaq of silver, no zakah on fewer than five camels, and no zakah on less than five awsuq of dates."

Agreed upon. The word wariq means silver, and five awaq equal two hundred dirhams.

Important Note on Converting the Gold Nisab into Grams

Jurists agree that the original gold nisab is twenty mithqals, but contemporary scholars have differed when converting the historical mithqal into grams. The widely adopted estimate among many contemporary scholars and institutions is approximately 85 grams of pure gold, while some scholars estimate approximately 92 grams. Using 85 grams is more cautious for clearing one's obligation, and it is the figure used for the practical calculations in this article.

How Do You Determine the Cash Nisab in Your Currency?

Because gold, silver, and currency prices change, the nisab cannot be fixed permanently in dollars, riyals, pounds, or another currency. Calculate it when the hawl begins and review it when zakah becomes due as follows:

Gold nisab = current price per gram of pure 24-karat gold x 85.

Silver nisab = current price per gram of pure silver x 595.

There is a recognized scholarly disagreement over whether modern paper currency should be measured by the gold nisab or the silver nisab. The more cautious approach for clearing the obligation and the more beneficial for the poor is to use the lower of the two values, which is usually the silver nisab in our time. Whoever follows a recognized fatwa that uses the gold nisab in the person's country or from a trustworthy scholarly body is following a well-known matter of ijtihad.

Gold that is itself owned is not assigned the value of 595 grams of silver as its nisab. Its own pure-gold weight and specific nisab are used.

What Is Hawl, and When Does It Begin?

A hawl is one complete Hijri year beginning on the day the wealth first reaches the nisab. It does not begin at the start of the Gregorian year, and zakah does not have to fall in Ramadan.

Example: If your total cash reaches the nisab on 10 Muharram, your zakah date is the completion of the hawl on 10 Muharram of the following year, provided the wealth did not fall below the nisab during the hawl.

If the wealth falls below the nisab during the hawl, the hawl is interrupted according to the majority of scholars. A new hawl begins on the day it reaches the nisab again. Business profits generated from the original capital during the hawl follow the original capital and are subject to zakah when the original capital's hawl is complete.

Someone whose income is renewed every month has two methods:

• Record each amount saved and pay its zakah when its own hawl is complete.
• Choose one fixed Hijri date each year and pay zakah on everything owned that day. Zakah on amounts that completed a hawl is obligatory, while payment on amounts that did not complete a hawl is an advance payment of their zakah. This method is easier and more cautious.

Which Assets Enter the Zakah Calculation?

On the zakah date, a Muslim considers the following assets that he or she owns:

• Cash kept at home or in a wallet.
• Balances in current accounts and permissible savings accounts.
• Different currencies converted into one calculation currency at the exchange rate on the zakah date.
• Gold and silver on which zakah is due.
• The value of goods prepared for sale.
• Collectible debts owed by a person who is able and willing to pay.
• The value of shares or assets purchased for trading, according to the details explained below.
• Permissible digital assets on which zakah is due, according to their nature and the owner's intention.
• Rent, profits, and cash distributions that remain until a hawl passes over them or that are combined with an original asset whose ruling they follow.
• Money saved for marriage, buying a home, Hajj, or education if it reaches the nisab and a hawl passes over it.

In the practical calculation adopted in this article, the values of cash, gold, silver, and trade goods owned by one person are combined to complete the nisab because of their shared function as monetary value and commercial property. This is a recognized scholarly view. The question of combining gold and silver when they exist apart from cash and trade goods is a matter of juristic disagreement. Anyone whose obligation depends solely on this issue should ask a trustworthy scholar.

Assets Not Included in the Calculation

Items kept for personal use are not subject to zakah in themselves unless they are prepared for sale. These include:

• The home in which the owner lives.
• The vehicle the owner uses.
• Personal furniture, clothing, and devices.
• Professional tools, machinery, and equipment used in production, as distinguished from goods prepared for sale.
• Rental property itself. Saved rent is subject to zakah if it reaches the nisab and a hawl passes over it.
• Money held in trust for someone else, because its zakah is the owner's responsibility.
• Gemstones and pearls kept for personal use, unless they are prepared for trade.

The practical rule is that an item prepared for use is not subject to zakah in itself, while an item prepared for sale and trade is subject to zakah on its value when the conditions are fulfilled.

Zakah on Salaries and Wages

Zakah is not due on a salary merely because it is received. Whatever the owner spends on needs before a hawl passes is not subject to zakah. Whatever is saved and brings the total to the nisab is subject to zakah after its hawl is complete.

The easiest method is to choose one Hijri date each year and pay zakah on all existing savings, as explained above. Zakah on older amounts whose hawl is complete may not be delayed until the newest salary completes a hawl. Instead, it is paid at the date of the oldest amount, or the zakah of everything is paid early.

Zakah on Gold and Jewelry

If the pure-gold content reaches approximately 85 grams and a hawl passes over it, zakah is due according to the stronger view regarding personally used jewelry. The owner may pay 2.5% of the gold itself or its cash value on the date it becomes due.

If the gold has different karats, calculate the pure-gold amount in each type and combine the pure amounts. Diamonds and gemstones are excluded unless they are held for trade.

Calculating zakah using the old price paid for the gold is not sufficient, because the obligation concerns what the person owns on the zakah date.

Zakah on Trade Goods and Businesses

On the zakah date, a business owner:

• Counts cash and account balances owned by the business.
• Values goods prepared for sale at their market price on that day.
• Adds collectible debts owed by customers.
• Excludes fixed assets used by the business, such as an occupied building, machinery, furniture, and vehicles not prepared for sale.
• Pays 2.5% of the zakatable total.

The merchandise does not have to be sold before zakah becomes due. If sufficient liquidity is unavailable when zakah is due, the owner must work to pay it from cash or sell enough trade goods and may not delay it without an excuse.

Zakah on Shares and Investments

The zakah of shares differs according to the owner's intention and the true nature of the company:

• Shares held for trading: If purchased with the intention of selling when the price rises, they are valued at their market price on the zakah date, and 2.5% of their value and cash profits is paid.
• Long-term investment shares: If the company pays the required zakah on behalf of its shareholders, zakah is not repeated on the same amount. If it does not, the company's activity and assets must be examined. If it is a trading company whose property consists of cash and goods prepared for sale, the shareholder pays zakah on his or her share of the zakatable assets. If it is an industrial, service, or real estate company that owns fixed assets for use or rent, zakah is not due on the value of the buildings, machinery, and fixed assets themselves. Zakah is due on cash, merchandise, and collectible debts included in the share, while saved cash distributions are subject to zakah when their hawl is complete.
• When zakatable assets cannot be identified: If the company does not disclose what it paid in zakah, its statements are inaccessible, or a fund or company holds mixed assets, do not rely on a random estimate. Ask a trustworthy scholar or zakah specialist about the specific investment.
• Cash profits: Whatever remains with the owner until its hawl is complete is paid with the owner's cash. Profit from trading shares follows the original capital's hawl.

One ruling cannot be applied to all investment funds and retirement accounts because the ability to withdraw, the true nature of ownership, the types of assets, and the party paying zakah differ from one contract to another.

Zakah on Cryptocurrency

If a cryptocurrency is permissible and under complete ownership, then if it is held as money or a store of value, its value is combined with cash. If it is held for trading and sale, it is treated as trade goods and valued on the zakah date. Prohibited tokens or contracts, interest earnings, and assets in which valid ownership is not established do not become permissible merely because zakah is paid on them.

For further detail, read Cryptocurrency Trading in Islam: Important Sharia Guidelines.

Zakah on Real Estate and Rental Income

The ruling differs according to intention:

• A home owned for personal residence is not subject to zakah in itself.
• Property prepared for rental is not subject to zakah in itself, but saved rent is subject to zakah if it reaches the nisab and a hawl passes over it.
• Property purchased with the intention of trading and resale is valued every year at its market price and its zakah is paid.
• Land whose owner has not settled on an intention to sell, or purchased it for construction or use, does not become trade goods merely because it might be sold in the future.

The Effect of Debts on the Zakah Calculation

Two types must be distinguished:

A Debt Owed to You

If it is owed by someone financially able and willing to pay, it is treated as collectible property, and you pay zakah on it every year. If it is owed by someone insolvent or delaying payment and you cannot collect it, zakah is not due while it remains inaccessible according to the stronger view. A new hawl begins after you receive it.

A Debt You Owe

The view adopted in this article is that debt does not remove zakah from property that remains in your ownership. If you pay the debt before the hawl is complete, you pay zakah on what remains. If the debt remains owed when the zakah date arrives, you pay zakah on all existing zakatable property.

See Debts, Loans and Riba in Islam.

To Whom Is Zakah Paid?

Allah defined the categories of zakah recipients. He says:

{إِنَّمَا الصَّدَقَاتُ لِلْفُقَرَاءِ وَالمَسَاكِينِ وَالعَامِلِينَ عَلَيْهَا وَالمُؤَلَّفَةِ قُلُوبُهُمْ وَفِي الرِّقَابِ وَالغَارِمِينَ وَفِي سَبِيلِ اللَّهِ وَابْنِ السَّبِيلِ فَرِيضَةً مِنَ اللَّهِ وَاللَّهُ عَلِيمٌ حَكِيمٌ} [al-Tawbah: 60].

Meaning: {Zakah is only for the poor, the needy, those employed to administer it, those whose hearts are to be reconciled, for freeing those in bondage, for those in debt, in the cause of Allah, and for the stranded traveler. This is an obligation from Allah. And Allah is All-Knowing, All-Wise.}

Zakah may not be spent on any charitable project a person chooses independently. Building mosques, printing copies of the Quran, and beneficial public projects have their place under voluntary charity and endowments, but according to the majority of scholars they are not among the prescribed categories of zakah.

Zakah may be paid to a poor relative whose financial support is not obligatory upon the payer, combining the reward of zakah and maintaining family ties. Parents, children, and a wife whose support is obligatory upon the payer may not be given zakah as a means of protecting the payer's wealth from an obligatory expense. According to the stronger view, a woman may give her zakah to her poor and eligible husband because his maintenance is not obligatory upon her.

For more general questions, read Questions and Answers on Zakah and Charity.

Common Mistakes When Calculating Zakah on Wealth

• Using the Gregorian year while paying only 2.5% every 365 days, even though the basic hawl is the shorter lunar year.
• Fixing the nisab at one cash amount for many years despite changing gold and silver prices.
• Calculating zakah only on profits while the underlying business assets remain subject to zakah.
• Valuing merchandise at its old purchase price instead of its market value on the zakah date.
• Excluding savings intended for marriage, a home, or Hajj from the calculation.
• Including one's home, personal vehicle, and household furniture in zakatable wealth.
• Deducting all debts and installments while they remain unpaid.
• Counting a tax payment or earlier donation as zakah without having intended zakah when paying it.
• Paying zakah to someone ineligible without verifying eligibility.
• Delaying zakah after it becomes due while waiting for Ramadan or a particular project without an excuse.
• Giving inferior property or stagnant merchandise merely to dispose of it.
• Combining the property of a husband, wife, and children as though it were owned by one person without distinguishing ownership.