Thread by @farazadam2

𝐙𝐀𝐊𝐀𝐓 𝟏𝟎𝟏

This thread simplifies the rules of Zakat and is a quick reference for anyone needing a refresher.

WHO MUST PAY ZAKAT?

1. Muslim
2. Adolescence - only in the Hanafi school.
3. Mental Capacity - only in the Hanafi School

Other Madhabs apply on the wealth of child and those who lack mental capacity too.

WHAT ARE THE CONDITIONS FOR WEALTH?

1. You own it.
2. You have it with you, in safekeeping, or invested somewhere. Basically, it is not lost completely nor something kept as collateral.
3. Must equal the threshold (Nisab) again after one lunar year.

NISAB

The Nisab fluctuates and there are two standards: the gold and silver.

Both are practiced. Go with what your local scholars advise.

WHICH ASSETS?

1. Cash
2. Receivables
3. Gold & Silver
4. Inventory
5. Zakatable assets in investments

CASH

Zakat is payable on all cash assets in one's ownership.

Zakat is due on petty cash at home as well as savings in bank accounts.

Zakat is due on all currencies in one's ownership.

Zakat is not payable on cash that has been spent before the Zakat year-end.

RECEIVABLES

Loans: Zakat is payable on the loan each year. The lender has the option to pay annually, or alternatively pay for all previous years upon repayment.

Credit sales: Zakat is payable each year on the outstanding payments from trade stock and assets.

NON-ZAKATABLE RECEIVABLES

Non-trade receivables
Payouts and awards
Claims and damages
Settlements
Inheritance shares

(Above is Hanafi view, other Madhabs differ)

GOLD & SILVER

HANAFI: The Hanafi school treats all gold and silver as Zakatable, regardless of whether it is worn, stored, an investment or trade stock.

NON-HANAFI: Gold and silver jewellery owned by a woman for personal use to wear is not Zakatable. Other gold is.

GOLD & SILVER

MIXED METAL JEWELLERY: According to the Hanafi school, Zakat on gold and silver is always due even if it is 9 carats. Only the gold & silver elements are Zakatable in such jewelry.

Formula: Price of gold carat per gram x no. of grams.

You can use the scrap value.

PROPERTY

RESIDENTIAL PROPERTY: No Zakat

BUY-TO-SELL (property trading): Zakatable on the full market value.

BUY-TO-LET: Zakat on net rental income only

SHARES

ACTIVE TRADING STRATEGY: Zakat is due on the full value of the investment at market value. Active trading here means an investment with the sole intention to sell and capture short-term positive price fluctuations.

SHARES

BUY-AND-HOLD TRADING STRATEGY: Zakat is not due on the full market value. Zakat is only due on the underlying Zakatable assets. If it is difficult to determine the net Zakatable assets value, a proxy of 25% can be used for the net Zakatable assets.

PENSIONS

Zakat is due on all defined contribution schemes whether SIPPs, AVCs, Personal Pensions or Stakeholder Pensions.

Zakat is not due on defined benefit schemes such as final salary schemes and career average schemes.

PENSIONS

Ideally, one should pay Zakat according to the percentage of Zakatble assets. If that is not possible, one may use the following proxies:

15% Direct Property Fund
26% Shariah Compliant Fund
27% Equity Fund
50% Diversified/Multi-asset/Mixed Fund
100% Bonds/Fixed Income

BUSINESS ZAKATABLE ASSETS

Bank deposits & petty cash
Trade receivables
Loan receivables
Inventory
Stock
Investments in Zakatable assets

BUSINESS NON-ZAKATABLE ASSETS

Property, plant & equipment
Capital & fixed goods
fixtures & fittings
collaterals
Intangibles not developed/sourced for trade such as copyrights, patents, trademarks and software

DEDUCTIBLES

1. Incurred debts payable in full within 12 months: ​

can be deducted.

2. 12 months’ installments of long-term liabilities ​

deduct one year’s worth of instalment repayments.​

3. Arrears:​
All arrears and overdue payments can be deducted

ZAKAT FORMULA

(Gold + silver + cash + receivables + investments in Zakatable assets + business stock) - (liabilities due now) = Net Zakatable assets

Net Zakatable assets ≥ Nisab = Zakat payable

Net Zakatable assets < Nisab = No Zakat due