Zakat

Zakat (Arabic زكاة, also spelled zakah) is the obligatory annual alms that Muslims must pay on qualifying wealth held above a minimum threshold, known as the nisab. It is one of the five pillars of Islam, alongside the declaration of faith, prayer, fasting in Ramadan and pilgrimage. Zakat is paid to specified categories of recipients, and in some countries it is collected and distributed by the state under law, while in others it is a personal religious duty administered through mosques, charities and community bodies.

The word derives from an Arabic root meaning both purification and growth, reflecting the idea that giving part of one's wealth purifies the remainder.

Zakat is due from an adult Muslim of sound mind who owns wealth above the nisab for a full lunar year, called the hawl. The nisab is traditionally set by reference to 85 grams of gold or 595 grams of silver, figures derived from classical measures; scholars differ on which benchmark to use for cash today, and the silver threshold produces a much lower figure. Debts due may be deducted from zakatable wealth under rules that vary between schools of law.

For cash, savings, gold, silver and trading inventory, the standard rate is 2.5% of the zakatable amount. Agricultural produce is assessed at harvest at 10% where crops are naturally irrigated and 5% where irrigation is costly. Livestock has its own schedule based on the number of animals. Personal-use assets, such as a home, clothing and a car used for private purposes, are generally exempt.

Modern questions include how to treat shares, pension funds, rental property and business assets. A common approach treats shares held for trading as inventory, while long-term holdings may be assessed on the company's zakatable assets. AAOIFI has issued a Sharia standard on zakat that many institutions use for guidance.

A person holds savings of 20,000, gold jewelry kept as an investment worth 5,000 and owes 3,000 due within the year. Assuming the nisab threshold, measured in gold, is lower than the net amount and the wealth has been held for a lunar year, the zakatable base is 22,000, and zakat due is 2.5% of that, or 550. A different school of law might treat the debt or the jewelry differently, changing the result.

The Qur'an (9:60) lists eight categories of recipients: the poor, the needy, those employed to collect and administer zakat, those whose hearts are to be reconciled, the freeing of captives, debtors, those striving in the cause of God, and stranded travelers. Most scholars hold that zakat may not be paid to one's own parents, children or spouse, whom the payer is already obliged to support, and it cannot be spent on general public works that do not reach eligible individuals.

Practice varies widely. In Saudi Arabia, zakat on businesses is assessed and collected by the Zakat, Tax and Customs Authority. In Malaysia, zakat is administered by state religious councils, and payments can reduce income tax. Pakistan introduced compulsory deduction of zakat from certain savings accounts under the Zakat and Ushr Ordinance of 1980, although individuals can file a declaration to be exempt. Sudan also operates a state zakat system. In most other countries, including those with Muslim minorities, zakat is voluntary in law and paid through charities, raising questions about governance, transparency and how taxes and religious obligations interact.

Islamic banks often calculate zakat on their own capital and may pay it on behalf of shareholders, or they may offer customers tools to calculate and pay their zakat. Funds and sukuk may disclose zakat per unit to help investors. Zakat is distinct from income purification, which requires impermissible income, such as interest, to be given away and does not count as charity.

From a compliance standpoint, large zakat flows through charities and informal channels require the same controls as other charitable transfers. Regulators and the FATF have highlighted the risk that charitable organizations can be misused for money laundering or terrorist financing, and banks apply a risk-based approach to accounts that collect and distribute zakat.

Zakat is compulsory and calculated, unlike sadaqah, which is voluntary and can be given at any time in any amount. A waqf is a permanent endowment whose income serves charitable purposes, and a qard hasan is a benevolent interest-free loan. In Judaism, tzedakah plays a comparable role as an obligation of charitable giving grounded in justice. Zakat's role in redistributing wealth is often discussed within maqasid al-sharia, the higher objectives of Islamic law, and in work on financial inclusion.