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Islamic Voice Logo
MONTHLY    *    Vol 11-01 No:121    *  JANUARY 1997/ RAMADAN 1417H
email: editor@islamicvoice.com

Zakat

Zakat is paid at almost a uniform rate of 2 1/2%. The minimum standard of surplus of wealth over which zakat is charged is known as Nisab. It differs with different kinds of properties. In case of silver it is 52 1/2 Tolas (612 grm) in case of gold it is 7 1/2 Tolas (85 grm).


Zakat on Pure Gold and Gold Jewellery
Zakat on pure silver, silver jewellery, House hold items etc
Zakat on Landed property
Zakat on business stock
Zakat on Partnership firms
Zakat on Cash and Bank Balances
Zakat on loans, Government bonds, provident funds, LIC Etc
Zakat on Agricultural produce
Zakat on Animals including poultry and fish farming
Liabilities






I. Zakat on Pure Gold and Gold Jewellery

Zakat should be calculated on Pure Gold and jewellery at a value as on the date of Valuation. There are different opinions on the value to be adopted for valuation (i.e.) Purchase price or Market price. Most of the Ulema have favoured Market value prevailing as on date of valuation of Zakat and not the Purchase price.

A deduction of 2% from the weight of Jewellery is allowed towards studded stones as Zakat is not payable on any kind of stones including diamonds, rubies, emeralds, pearls etc. If there are rows of pearls or any other beads you have to make a rough estimate and deduct from the total weight of the article.

You may deduct 4 grams from the total weight of the jewellery item if there is a dory (thread for tying at the back).

For Kundan Jewellery, deduct 25% from the weight for lac. Zakat is payable on precious and semi precious stones, if you are in the Jewellery business. The amount receivable on credit sales is to be added to the total value and the amount payable to your suppliers or loans taken if any for the business is deducted to arrive at the net value on which Zakat is due and payable.
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II. Zakat on pure silver, silver jewellery, House hold items etc.

Zakat is payable on silver in pure form or in the form of jewellery utensils, decorative items and all household items including crockery, cutlery made of silver at the prevailing market rates. For arriving at the value of utensils, and household items 10% of the value is to be deducted as it is not pure silver.

Zakat on Jewellery should be paid by the owner of the jewellery. If a woman is the owner of the jewellery and she has no liquid cash, her husband, son or father can also pay the Zakat on her behalf. But if they are also not paying, then the owner should sell part of the jewellery and pay Zakat. If the jewellery is held by two or more persons jointly, then the individual should calculate on his/her share out of the jewellery and pay Zakat on the same if the value of the individual's share exceeds Rs.4,000/-.
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III. Zakat on Landed property

Zakat is not payable on the following properties. a) Personal residential houses even if they are more in number meant for residential purposes only.
b) Property given on rent irrespective of the number
c) Agricultural land, if meant for agricultural and farm house (if any) on agricultural land, servant quarters, godowns, tractors, bullocks and all implements for use at the farm.
d) Open land owned with the intention of building a house in future for self or for the benefit of the family.
Zakat is payable on the properties held with an intention to sell at a future date for a profit or as an investment. However, if your intention on holding the properties changes in the current year i.e. from self use to business purpose, be honest to Allah and pay Zakat on it at the current market value from the year your intention has changed.

If you have sold a property which was meant for business and have entered into an agreement of sale on the balance of money receivable on the date of Zakat calculation, Zakat is to be paid on such amount receivable.

Any loans taken for purchase of property meant for business should be deducted from the nett figure before calculating Zakat.

If you are a builder and in property business, (Purchase and sale or develop and sell), on all completed unsold portions you have to pay Zakat at the prevailing market value. Zakat is also payable on amounts of instalments receivable on such portions after deducting loans or liabilities payable on the same.

On property in the form of building, shops, godowns or land if meant for property business Zakat is payable. There is a misconception that there is no Zakat on property even if it is for business. This is not correct. However, there is no Zakat on property occupied for running your business like shop, showroom, godown, factory building, poultry shed, cattle shed etc. If any property is held jointly by two or more persons the individual must calculate Zakat on his share in the property.
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IV. Zakat on business stock:-

No matter what your business is you have to pay Zakat on all Stock in Trade. The stock must be valued at Cost price (Purchase Price Plus Transport, Insurance etc). If you have any bills receivable from your customers you must add the same. The following amounts are detectable from the above

a) All amounts due to your suppliers.
b) All loans on stock on the date of calculation.
Dead stock should also be taken into account at the discount rate (i.e. if sold in the open market by way of discount sale etc). You should not calculate dead stock at Purchase Rate or Cost Price. Damaged stock need not be calculated at Cost Price but at scrap value. Pay Zakat on your net stocks as per above calculations.
Zakat is payable on all business stock including old parts, scrap, cars if you are in the car business (excluding taxies, lorries, pick-ups, auto, meant for transport business). Even on pan shop stocks Zakat is payable. Hence Zakat is payable on all business stock after adding bills receivable and deducting bills payable. Allah has promised to protect your stocks on which you pay Zakat regularly. By paying Zakat you are creating the best insurance on your stock.

Zakat on factory building, machinery and goods produced:-

There is no Zakat on factory building or any kind of machinery, but there is Zakat on products produced in the factory (finished stock). If there is any loan or liability on the finished stock you should deduct the same for calculation of the stock value. Similarly amount receivable on credit sales should be added to the nett stock. Bad debts should be deducted from nett calculation. Sometimes bad debts are recovered and you should pay Zakat on such recoveries in the year of recovery only and not retrospectively. There is no Zakat payable on vehicles used for personal transport and factory goods transport.
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V. Zakat on Partnership firms.

Zakat can be paid by the firm itself. But if the firm is not paying Zakat and a partner wants to calculate Zakat on his share in the firm he should take the amount standing to his capital and loan account as per the last Balance Sheet. Add his share of profit till the date Zakat is calculated. (This has to be estimated only as it is difficult to calculate the profit in between an accounting year. Deduct any loans or drawings taken by you from the firm till the date of calculation.
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VI. Zakat on Cash and Bank Balances

Zakat is payable on all cash balances and bank balances in form of balance in savings account, current account or fixed deposits including monthly income certificate or term deposits. The amount should be in the bank for one year. If the amount is utilised for personal or any other use at the time of calculation of Zakat, only on the balance of the amount Zakat is payable. But if the amount has been withdrawn and is lying as cash in hand you should pay Zakat on both Bank and Cash balances added together. Usually it happens that the balance keeps on changing as per personal requirements. You may pay Zakat only on the remaining amount on the date of calculation.
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VII. Zakat on loans, Government bonds, provident funds, LIC Etc.

Zakat is payable on loans advanced by you to your friends and relatives. It should be treated as cash in hand and Zakat is payable on it. You may deduct loans payable by you if any for arriving at the net amount. Zakat is also payable on all Government Bonds such as Indira Vikas Patrika, IDBI Bonds, Units, LIC Paid up Premiums and all such Postal Savings Certificates Etc. Zakat is also payable on Provident Funds, Earnest Money Deposits in case of contractors, Tender Deposits, Government Bills Receivable, Security Deposits etc.

Zakat on Company shares and mutual fund.

You should pay Zakat on investment in Company Shares calculated at quoted value on the date of Zakat calculation. If the share of your company is not quoted in any stock exchange, then you may use the services of a chartered accountant to arrive at the value. Similarly Zakat is payable on all Mutual Funds, private chits and chit funds. Your contribution in chit funds till the date of Zakat calculation may be taken into account. If you have withdrawn any amount then the net amount should be taken.
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VIII. Zakat on Agricultural produce

Zakat is payable on all agricultural produce including fruits, commercially grown flowers, vegetables and all types of grains at the time of harvest itself. The passing of one year does not apply for agricultural produce. a) On crops dependent on rain water only, Zakat is payable on 10% of the crop. You can give the produce itself or in kind or the cash value may be given.
b) On crops produced with Canal water, tank water or bore well and open well the Zakat is 5% of the crop produced. There is no deduction out of this on any account.
c) If land is partly irrigated by rain water, partly by well or canal water you may make your own judgement and calculate Zakat. But the formula or average 7.5% would be fair and reasonable. d) If there are two or more crops in a year on the same land you should pay Zakat on all the crops. NOTE: Grains retained for self consumption is detectable before calculating Zakat.
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IX. Zakat on Animals including poultry and fish farming

On all grazing animals like goats, sheep, camel, cows, broiler chickens, of average size, the Zakat is one animal or bird on every 40 animals or birds. But if the animal is of younger age (say less than 6 months) even one animal out of 100 can be given. There is no Zakat on egg laying birds, or milking animals such as cow, buffalo etc. You can calculate and give cash Zakat in lieu of birds or animal. In case of broiler chickens you can make your own judgement and calculate Zakat as there are no fixed forms.

Zakat for Goats/Sheep/Birds Etc. For 40 to 120 goats/sheep/birds : One goat/sheep/birds of a year or more old. For 121 to 200 goats/sheep/birds : Two goats/sheep/birds of a year or more old. Zakat for Cows/Buffaloes For 30 to 39 Cows/Buffaloes : One Calf of a year or more old. For 40 to 59 Cows/Buffaloes : One Calf of not less than two years old. For 60 Cows/Buffaloes : Two one year old calves For every additional 30 Cow/buffaloes; One year old calf. For every additional 40 Cows/Buffaloes: One two year old calf.
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X. Liabilities

If there is any Income Tax or Sales Tax payable to Government on the date of calculation of Zakat, such liabilities you may deduct before arriving at the net wealth. NOTE: Payment of Income Tax or Sales Tax does not fulfil your liability towards Zakat and you cannot deduct Income Tax payments from your net Zakat. Only tax liability, if due on the date of Zakat calculation is detectable from the nett assets. Zakat is apart from Income Tax and Wealth Tax payments.

If you feel that certain I.T. demands are is disputed, unpaid and are pending in appeals, you may deduct the entire outstanding tax liability. But if the tax liability is reduced in appeal or otherwise in future you have to pay Zakat on such saving for all the years you have not paid Zakat.

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