How to Calculate Zakah - Ethica Institute of Islamic Finance

Transcription

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How to Calculate Zakah
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© 2011-15. All rights reserved. Ethica Institute of Islamic Finance™ is a training, certification, and advisory company.
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PO Box 127150, Dubai, UAE | contact@EthicaInstitute.com
© 2011-15. All rights reserved. Ethica Institute of Islamic Finance™ is a training, certification, and advisory company.
1
“Establish
regular
prayer and give
Zakah”
(Quran 73:20 )
The Importance Of Zakah
The Prophet Muhammad (Peace be upon him) said:
If someone is given wealth by Allah but does not pay
its Zakah, that wealth will appear to him on the Day of
Judgment in the form of a bald serpent with 2 horns,
encircling him and squeezing him all day, then holding
him by the lips and telling him, “I am your wealth, the
treasure which you hoarded”.
(Bukhari & Muslim)
2
The Importance Of Zakah
• Zakah has an inner and an outer dimension
• Outwardly it purifies your wealth
• Inwardly it restrains inclinations such as greed,
miserliness
What Is Zakah?
• Zakah is a Divine obligation
• It is the right of the poor over the rich
• Withholding Zakah is equivalent to depriving the
poor of their God-given right
3
• “In their wealth there is a
known share for the
beggars and the destitute”
(Quran 70:24-25)
• “Take alms from their
property that you may
purify and sanctify them
and pray for them. Verily
your prayers are a comfort
for them” (Quran 9:103)
What Is Nisab?
• Minimum amount of wealth upon which Zakah is
payable
• The financial floor above which an individual is
considered ‘Sahib-in-Nisab’ and liable to pay Zakah
• The Nisab limit was set by the Prophet (Peace be
upon him) at 20 Mithqal which is equivalent to:
• 87.48 grams of gold
• 612.36 grams of silver
4
What Is Nisab?
• To determine current equivalent of the Nisab limit,
one must establish market rate for a gram of gold
and silver
• Zakah payable if:
Zakatable assets
+ (Debts owed to one)
− (Debts owed by one)
=> Nisab
What Is Nisab?
• Zakah is payable at a rate of 2.5% on all assets
• Let’s say the Nisab is $600
• Example 1
• Hamid’s Zakatable assets are valued at $10,000
• He owes $7,500 to a friend
• His Zakatable assets are $10,000 - $7,500 = $2,500
• Hamid’s Zakah liability is 2.5% of 2,500 = $62.5
5
What Is Nisab?
•
Example 2
• Jamal’s Zakatable assets are valued at $3,000
• Jamal owes $2,500 to various people
• His Zakatable assets are $3,000 - $2,500 = $500
• Jamal’s Zakatable assets are below the Nisab level,
he is not liable to pay Zakah
Who Pays Zakah?
• Sane adult
• Muslim
• Possessor of wealth
• Sahib-in-Nisab
6
Who Is Not Eligible To Receive Zakah?
• A descendant of the Prophet’s family (Peace be upon
him)
• The payer’s:
• Spouse
• Father or grandfather
• Son or grandson
Who is Entitled To Receive Zakah?
• The poor and destitute
• People whose total assets, excluding assets for basic
necessities, after deducting outstanding basic living
expenses and debts are less than the Nisab level
• Relatives should be preferred over the general public
7
Assets Subject To Zakah
• Personal Assets
• All assets for personal use are exempt from Zakah
except cash, gold and silver
• Trading Assets
• Zakah is liable on all assets purchased for resale
• Zakah is not liable on assets purchased to earn
rent, investment return
Assets Subject To Zakah
• Zakah is paid on the balance of assets owned on the
Zakatable date
• Zakah is not payable on impermissible income
• Entire value of impermissible income must be
given away to charity
8
Six Categories Of Assets Subject To Zakah
1. Gold and silver
2. Cash and liquid investments
3. Business assets
4. Livestock
5. Agricultural output
6. Mineral Ore
1. Gold And Silver
•
Subject to Zakah in all forms, whether owned for
personal use or trade
9
2. Cash And Liquid Investments
•
Cash at bank
•
Cash in-hand
•
Any form of investment that can be easily
liquidated excluding equity based investments
3. Business Assets
I. Property and other fixed assets
•
Zakah treatment is based on the following purchase
intentions:
i. Intention to retain ownership of asset
ii. Intention to reside in property
iii. Intention to resell asset
iv. No intention
10
Intention To Retain Ownership Of Asset
•
Not subject to Zakah (e.g. investment property)
•
Any profit received from rent is subject to Zakah
Intention To Reside In Property
•
If property is used entirely as residence it is exempt
from Zakah
11
Intention To Resell Asset
•
If purchased with the intention to resell for profit it
represents stock in trade
•
Entire value of property is subject to Zakah
No Intention
•
If there is no clear intention for purchasing an
asset Zakah is not payable on it
•
Any profit received as rent is subject to Zakah
12
3. Business Assets
II. Raw material, Work-in-progress, Finished goods
•
Subject to Zakah as they are purchased with the
intention to resell
3. Business Assets
III. Shares / Equity Investments / Trusts
•
If purchased with intention to resell, they are
subject to Zakah
•
If purchased as investment to generate returns,
Zakah is due only on Zakatable assets
13
When Is Zakah Paid?
• Zakah is payable on assets held for one lunar year
• Zakah year starts when a person first becomes
Sahib-in-Nisab
Zakah Date Considerations
1. Date when individual first becomes Sahib-in-Nisab
2. Wealth fluctuation during the year
3. Date of distribution
14
Date When Individual First Becomes
Sahib-in-Nisab
• Zakah year begins on the date an individual’s wealth
first equals Nisab
• Zakah liability is calculated from same date every year
• If an individual does not recollect this date, he can
make an estimate
• The beginning of Zakah year may be set in
Ramadan
Wealth Fluctuation During The Year
•
In case wealth fluctuates during the year, Zakah is
due only if it equals or exceeds Nisab at the end of
the year
15
Date Of Distribution
•
Zakah should be distributed exactly one year after
an individual becomes Sahib-in-Nisab
How To Pay Zakah?
You must:
• Identify the date you became Sahib-in-Nisab
• Determine market value of Zakatable assets on
Zakatable date
• Add debts owed to you, subtract debts owed to
others from value of Zakatable assets
• Pay Zakah at 2.5% of Zakatable assets value
16
Validity Of Zakah
• Zakah is valid if:
• Zakah payer makes a clear intention upon payment
• Recipient meets Zakah eligibility criteria
• Recipient receives ownership of assets given to
him as Zakah
Missed Zakah
• Zakah payments missed in previous years due to
ignorance or negligence must be calculated and paid
17
Zakah And Debts
• These include:
1. Debts owed to oneself
2. Debts owed to others
Debts Owed To Oneself
• Debts owed to oneself are subject to Zakah
• The following debts are included in Zakah
calculation before they are received:
• Debts owed to one on account of goods sold
• Personal loans
• All pension schemes except for state pension
schemes
18
Debts Owed To Oneself
• The following debts are included in Zakah
calculation after they are received:
• Inheritance
• Salaries
• Pensions
• Dowry owed to wife
Now Let’s Look At Pensions
Where pension benefits have not been received:
• If payment made to pension policy is compulsory,
deducted from salary at source and isn’t invested, it is
not subject to Zakah
• Zakah is due on all forms of pensions that are invested
• When not invested, pension holders should determine
value of their contribution as it is subject to Zakah
19
Debts Owed To Others
• Generally, all debts payable are deductible from
Zakatable assets
• Debts payable include:
• Basic living expenses payable
• Debt owed against goods purchased on credit
• Installment-based debt
• Personal, commercial loans
• Taxes
• Dowry owed to wife
Debts Owed To Others – Installment-Based
Classified into 2 categories:
• Mu’ajjal: Debt for which immediate payment is due
• Deducted from Zakatable assets
• Muajjal: Debt paid in installments
• Future payments for next 12 months deducted
from Zakatable assets
20
Debts Owed To Others – Taxes
• Money paid as general tax cannot be offset against
Zakah
• Money payable as tax can be deducted from
Zakatable assets
Questions
& Answers
21

How to Calculate Zakah - Ethica Institute of Islamic Finance

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