Zakat & Beyond

Zakat Assessment

What Is Zakât Payable On?

As stated in Chapter 5, Zakât is payable on five types of material wealth (see table, p. 43):

  • Personal wealth and assets
  • Trade goods and exploited assets
  • Agricultural Produce
  • Livestock
  • Treasure Troves

Also, there are three major conditions for Zakât on these types of wealth:

  • Sole, exclusive ownership
  • Growth (actually or potentially)
  • Agricultural Produce
  • Passage of a Zakât-year

Are Assets Used for Growth that Are Not Trade Goods Subject to Zakât?

Yes. These are called “exploited assets” and are considered a form of business wealth. While trade goods are themselves transferred to other parties (in a sale), exploited assets remain with the owner as permanent capital. They are possessions obtained, not for resale, but to generate income and to provide benefits to their owners. These include assets rented for profit, such as residential buildings, means of transportation, and anything rented out for profit. They also include producer animals, sheep for wool, cows for milk, bees for honey. The asset itself is not subject to Zakât, but the “growth” or profit from the asset.

What Is A Trade Good?

A trade good is something one acquires and intends to sell for a profit. It is not something one obtains for personal or household use. It is a thing that must be either bought or sold for the purpose of profit. It is zakatable only once in the Zakât-year and fits all the other conditions of Zakât of any other zakatable wealth.

Are Fixed Assets Subject to Zakât?

No. A fixed asset is one that would mend her own is not itself income generating but helps other assets generate income or produce. So store fixtures, computers, tables, even buildings or machinery that are not generating income but merely housing or running one’s business are all Zakat-exempt. The test for whether an asset is fixed or exploited is whether the asset is generating profit in and of itself. So a non-income generating building is a fixed asset (non-zakatable) but a hotel is an exploited asset (zakatable on its net income).

What Is the Zakât on Exploited Assets?

On the growth of an exploited asset, Zakât is assessed after deductions (taxes, wages, debt, maintenance, etc.) based on its appraised value plus the income it generates (figuring in loans to others) and then paid at the rate of 2.5 percent. This means that the passage of a Zakât-year does not apply on individual payments received through rent or on income earned. It means that the net earning and value of the asset—even a rental fee that comes in the day before the Zakât-year ends—is calculated and paid on the Zakât due date. The Zakat must be loves the wealth of paid on an established annual his inheritors date in which one pays Zakât on all income.

Is There an Alternative Opinion on Exploited and Fixed Assets?

Yes. The opinion is somewhat involved, but it can be summarized as follows. A quartet of withholds will end up modern fiqh luminaries (including Shaykh Yusuf Qardawi from our own time) endorses analogizing the Zakât of exploited assets to agricultural land (with some modifications). But they also add to this the fixed assets of industrial equipment, plants and machinery, on the grounds that they are not tools of a craftsman, but productive and growing capital (see Fiqh az-Zakât, 304). Shaykh Yusuf makes a further distinction between these productive assets by categorizing them as “fixed” (the industrial plants, etc.) or mobile (like vehicles or honey producing bees).

The analogy with agriculture is that its land is Zakât exempt, but the growth of the land (i.e., the crop) is zakatable at the rate of 10 percent of the net harvest value, if naturally watered, and 5 percent of the harvest profit, if irrigated. So Shaykh Yusuf likens productive exploited assets that are fixed, and fixed industrial assets to the non-irrigated crop Zakât rate (10 percent) “when it is possible to know the net income after deducting costs, as is the case in business corporations.” But if it is difficult to determine net income, then “Zakât is calculated at the rate of 5 percent of the profit” (see Fiqh az-Zakât, 305-06) for the exploited assets that are fixed, and fixed industrial assets. He also notes that all forms of productive capital that produce profitable investment, even in the agricultural business sector (this is different than family should be treated like exploited and fixed assets (as, say, rented buildings or factories), using the same Zakât criteria and calculation methods (see Fiqh az-Zakât, 241-309).

Does a Hawl have to Pass on All the Profit of a Productive Asset Before It Becomes Zakatable?

No, a hawl, or Zakât-year, only has to pass on the nisâb of productive assets in BOTH opinions. The practical difference between the two opinions (the latter analogized with modification to agricultural land, the former to income) is only the Zakât rate. But both opinions say that the hawl need NOT elapse over all the wealth before it is zakatable. This is, of course, true for crops, which are due upon harvest, for obvious reasons. But it also holds for other growth-asset models under these opinions. Their Zakât comes due on the Zakât maturity date. Like the multi-seasonal harvest of a crop, or mined minerals, the collection of productive assets is multiple (throughout the Zakât-year). Therefore, the Zakât must be paid on the accumulated amount on the Zakât due date. The hawl for all of these must elapse on the nisâb only.

This can be a point of confusion, so it should be emphasized. With (productive) fixed and exploited assets—just like with personal wealth—Zakât is paid on all net income for the Zakât-year. It is paid on the Zakât due date for everything that remains with one after basic living expenses for oneself and one’s dependents have been paid out for that year. So a hawl DOES NOT HAVE TO ELAPSE on each dollar received.

What About Similar Products Not Mentioned in the Table of Ni|âb and Zakât Rates?

  • GENERAL RULE: Zakât is potentially due on all products whose sources are not zakatable.

All types of growth-yields are zakatable, whether or not their origin is subject to Zakât—like crops from land, honey from bees, dairy from livestock, eggs from poultry, silk from silk-worms, and so forth. The producers (bees, livestock, poultry, etc.) are themselves Zakât-exempt (unless one is actually breeding the producers for sale or using the producers themselves as trade assets, in which case their Zakât is assessable as a saleable asset, or trade good). Zakât rates vary for different types of wealth, such as money, agricultural products, livestock, and natural resources. Shaykh Yusuf Qardawi assesses the Zakât rate on such yields as 10 percent of net income. Those jurists who consider non-pasturing producers as trade assets assess the Zakât rate at 2.5 percent on both principal and growth (Fiqh az-Zakât, 274).

What Zakât Is Due on Personal Wealth?

The most common zakatable wealth is cash on hand and in banks, stocks, and retirement and savings funds. The amount of Zakât due on this wealth is 2.5 percent of its combined total value as of the annual Zakât due date.

Is Zakât Due on Earned Income?

Yes. Earned income is the primary category of personal wealth today. It includes salaries and professional fees that result from labor and specialized tasks. Whatever of it is spent on personal and family expenses prior to the end of the Zakât-year is not subject to Zakât. But whatever portion of salaries and/or professional fees remains at the end of the Zakât-year is subject to Zakât— whether or not a full Zakat-year has elapsed over the portion in hand. On the date the Zakât falls due, whatever portion of the salary or the professional fees are in hand—even if it is a check received that day, within the Zakât-year— Zakât must be paid on it—so long as the total yearly salary and/or fees exceed the nisâb, the monetary equivalent of 3 US OZ. of pure gold. This is because those salaries and fees through the year are tabulated cumulatively.

Many modern Muslim jurists and scholars consider net earned income to be zakatable, including ‘Abd Al-Rahmân Hasan, Muhammad Abû Zahrâ, ‘Abd Al-Wahhâb Khallâf, Muhammad Al-Ghazali, Monzer Kahf, and Mahmûd Abû Sa’ûd (Kahf, The Calculation of Zakah, 5; Abû Sa’ûd. About the Fiqh of Zakât, 20). Hence, Muslim physicians, lawyers, employees, etc.—all are subject to Zakât on the income they hold on the Zakât due date without the passage of a Zakât-year. Again, the nisâb threshold is that of money (85 grams of gold). The zakatable amount is the residual money left over from earnings at the end of one fiscal year. This does not mean Zakât is due on the flow of income itself during the year. It is applied to whatever remains of one’s annual income at the end of the year (i.e., after taxes and expenses, and in all its forms and places of deposit collectively) (Fiqh az-Zakât, 310, 325).

Shaykh Yusuf Al-Qardawi summarized this issue in an opinion published by Islamonline.com. He holds that those on salaries can be classified into four groups:

  • Those earning salaries that barely meet their needs, who are not obliged to pay Zakât, unless they save the value of nisâb (or greater) for one year.
  • Those whose earnings exceed their needs, and who save the surplus beyond their living expenses, who pay Zakât on all that remains (whatever its form or place of deposit) on the Zakât due date, irrespective of whether a year has lapsed on all the funds or not. That is, it is considered as a collective amount for the year, parceled out through the year. Thus it all comes due on an established annual fiscal date.
  • Those earning in excess of their needs—who neither save nor invest their surplus, but spend it, or part of it, instead on unnecessary items and luxuries—whose Zakât remains due in full on the annual Zakât due date for the portion of their annual salaries that exceeded their basic needs during the Zakât-year.

Does One Pay Zakât on Jewelry and Ornaments?

According to the majority of schools, Mâlikî, Shâfi’î, and Hanbalî, there is no Zakât on women’s jewelry and ornaments, whether they are made of gold, silver, diamonds, pearls, minerals, or precious stones, so long as they are for personal use, not business, such as sale or rental. If such jewelry attains a quantity of extravagance or is used as a store of wealth, then the surplus is zakatable (Fiqh az-Zakât, 184, 186-188, 192, 199). The Hanafî position is that jewelry is zakatable. This book’s Zakât Calculation Worksheet does not itemize jewelry for personal use as zakatable, as with other property for personal use.