Six conditions of Muslim’s wealth determine if he or she must pay Zakat from it:
Abundance Above Need
Solvency (Freedom from Debt)
Lapse of a Lunar Year (or Time of Harvest)
ABSOLUTE OWNERSHIP is a legal term of art in Islamic jurisprudence (fiqh). It means that while God is the true Owner of all things, He has — as a mercy, honor, safeguard against the human propensity for greed, and test — accorded human beings the right as individuals to possess and control property to the exclusion of all others, such that he or she can exchange it for another asset or dispose of it without anyone else’s permission. This is a condition of Zakat because any material asset of wealth from which one pays Zakat must be transferred into the exclusive possession, or toward the sole benefit, of an individual from one of the eight categories that God has decreed eligible for Zakat. In other words, the individual Zakat recipient, someone poor or needy (or in the case of direct benefit, one in bondage or debt-ridden) must become the only owner or reap the unshared benefit of the Zakat paid by a Muslim whom God has materially enriched.
This means that assets administered on behalf of the community, properties in public trust, ill-gotten gains (like stolen property or interest), bad debts (until paid), and contributions (until one gains full control over them) have no Zakat.
GROWTH describes two states of a person’s property: (i) An asset that provides its owner profit or material benefit, or that could if put to use, or (ii) an asset that is itself produced by growth, either as a gain or by acquirement. So, earnings, livestock, and planting give or can give one increase. This is the meaning of the Prophet’s statement, on him be peace, that “Sadaqah (Zakat-alms or freewill offering) does not diminish wealth” (Al-Tirmidhi). One pays Zakat at a fraction of surplus growth, not on the things oneself or one’s family personally use, like a house (one lives in), furniture, a vehicle, clothing, or tools (including books). A farmer pays Zakat from crops at harvest but not on their remaining yield, even if stored for years. This adds another shade to Zakat’s linguistic meaning of ‘growth’ (along side furnishing its payer with blessing and increase from God.) At cultivation, a crop is literally growth. Stockpiled, it no longer grows, though it still holds wealth.
MINIMUM QUANTITY refers to the lower limits that the Prophet, on him be peace, established as fixed thresholds at which a Muslim must pay Zakat from specific kinds of eligible wealth. This is called nisab, literally, ‘origin,’ because the right of the poor and Zakat-worthy in one’s Zakatable wealth begins at this cusp of its accumulation.
Here is a table of Zakatable wealth streams, their nisab thresholds, and Zakat rates.
ABUNDANCE ABOVE NEED takes account of the wealth one needs for the basics of life. This makes reference to an important interaction between growing assets subject to Zakat and the nisab threshold at which one has to pay Zakat on it. Some scholars hold that once a Zakatable wealth-stream reaches nisab, one pays Zakat on it at its due regardless of any other consideration because (i) people do not generally use growth assets to suffice their essential living needs (re-read that sample list in the “Growth” section above) and (ii) growth assets present the only objective measure by which we can effectively and fairly calculate Zakat.
Other scholars (whom Shaykh Yusuf Qardawi in Fiqh az-Zakat endorses as “steeped in Zakat learnedness”) hold that since Zakat’s very purpose is to suffice the poor, needful, and deserving, it treats any wealth one uses, personally or for dependents, to meet life’s essential needs, as non-existent. These scholars note that this necessarily includes wealth in the form of money because so many today depend on money to meet their basic life needs.
In terms of Zakat, money is a clear growth asset. This contradicts the basis of the argument that nisab, pure and simple, is the best measure to determine whether or not one pays Zakat on wealth.
Hanafi scholars, in general, argue that Islam defines the categories of rich and needful by nisab. One who has it is wealthy. One who doesn’t is poor. Nor can one “cheerfully” pay Zakat from wealth needed to sustain oneself and one’s family. This runs counter to the spirit of Zakat, which is to be paid gladly. According to them, then, Nisab and Zakat calculation begin in the wealth one accumulates beyond the wealth used for their basic needs, and those of their households and dependents.
The Quran directly supports this opinion: “They ask you,” O Prophet, “what” part of their wealth “they should spend” charitably. “Say:” Spend of your “surplus” wealth (Surat Al-Baqarah, 2:219). The great scholar of prophetic statements, Ibn Hajar, moreover, notes that the celebrated compiler of the most authenticated collection, Bukhari, in fact, titles a section on Zakat to make clear that the Prophet’s statement, on him be peace — “There is no sadaqah save from wealth” — sets a revealed requirement for paying Zakat. It means valid Zakat is conditioned on a man having met the basic needs of himself and his family prior to his alms payment. (Islam does not require wives to support husbands and dependents. (see Can Zakat Be Given to Family?))
The nisab-centric scholars are right that assessing life needs is inevitably subjective and thus open to endless personal justification of expansion. Scholars exempting essential-living wealth offer reasoned juristic rubrics to categorize and determine what assets qualify as truly essential, that is, without which a basic life cannot equitably be sustained. They emphasize that this varies in time and place, and so requires scholarly assessment by those learned both in Zakat and in one’s society and social conditions. Here’s a three-part guideline for detemining basic needs cited based on Fiqh az-Zakat as a good standard:
Existential needs that stave off actual or likely ruination (food, water, shelter, etc.)
Subsistence needs (living expenses, clothing, personal weapons (Islamic jurisprudence traditionally includes this), and the like)
Prospective needs (trade tools, debt repayment, furnishings and utensils, means of transport, books (Islam considers absence of knowledge destruction))
SOLVENCY means freedom from debt. Most Islamic jurists hold that debt eliminates one’s Zakat obligation (or reduces one’s Zakat due) because debt has a priority on repayment. This ruling grows out of the first condition for Zakatable wealth, absolute ownership. The creditor is the actual owner of the debt, or at least shares in the ownership, and two people cannot pay Zakat on the same wealth. If a debtor is likely to repay the debt, the creditor pays Zakat on it (either at its due or when he or she receives its payment). A debtor, on the other hand, whose debt takes him or her below the Zakat threshold (nisab) is, in fact, eligible to receive Zakat, by the decree of God. One must have proof that verifies his or her claim of debt, however.
Most Muslims today live in the absence of Zakat collecting authorities who would normally personally assess one’s discernible wealth and determine one’s due Zakat. Muslims ought to assess their own indebtedness and pay Zakat on any remaining wealth after deducting their debts. One should break these debts down into two major categories, in order of priority:
Debts to God
a. Past years of overdue Zakat
b. Payments of expiation for worship violations
Debts to people
In the matter of recurring debt payments (mortagages, unsecured debt (credit cards and the like, deferred bride price (mahr) payments), there is dispute about their deductibility as debt. It may be safer for one to assess one’s nisab and calculate one’s due Zakat as a right to the poor despite these, if one is paying them as a matter of course without undue threat from delinquency. It should be noted that Islam does not condone excess consumption beyond basic needs as legitimate debt, may God forgive us our excesses.
A Muslim pays Zakat once a year on the profit (or potential of it) from eligible wealth. There are two types of property categories to reckon:
Designated Growth Holdings: (Business assets and stores of value (including money, precious metals, gems, livestock, etc.))
Gains from the Earth (cultivated produce like crops, fruits, and anything extracted from the earth).
On the first type of wealth — growth assets — the passing of a complete 12 months of the hijri calendar, the Islamic lunar year, occasions one’s Zakat due date. It is a hard (as in inflexible) deadline. One can pay in advance of it (even by years) according to estimate (and then reconcile any shortfall at the actual Zakat due date), but one cannot miss it wthout incurring sin.
One calculates a Zakat year from whatever date one’s Zakat-eligible wealth reaches the minimum threshold of nisab for that type of wealth until an entire 12 hijri months pass (see the nisab graph in Can Zakat Be Used to Pay Debt?)
Whatever profits or gain comes from one’s principal wealth during that Zakat year gets added to that principal for the purposes of calculating Zakat payment at the principal’s same original due date. One does not start another lunar year on these additional assets, be it profits or birth from livestock, even if it comes the day before the due date.
If one receives a different kind of Zakat-eligible wealth, most scholars say that one starts a new calculation of a year for its Zakat due date. Some say one should pay Zakat on it upon receipt, or add it to one’s Zakat payment if one has an established Zakat accounting year.
If one takes possession of a new asset that is the same as an existing kind of wealth — adding gold to your gold, or sheep to your sheep — the Hanafis and Malikis hold that one adds it to the existing wealth and pays Zakat on it at that existing wealths due date because it is less liable to create confusion and therefore easier and the Shari’ah goes with ease. The Shafi’is and Hanbalis say that one can start a new Zakat-year calculation on newly acquired wealth.
For the second kind of wealth, gains from the earth, one pays Zakat upon receipt, at time of harvest or extraction.
(Read Is Zakat Due on All Wealth? for more on this)
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