Zakat is one of the five pillars of Islam, and it is a sacred duty for Muslims. Zakat is a way to purify your wealth and help those in need. It is a way to show your thankfulness to Allah for His blessings, and it is a way to help those who are less fortunate. Zakat is an important part of our faith, and it is a way to make the world a better place. Let's discuss how is Zakat calculated and why is Zakat important for purifying wealth and eradicating poverty?
What is Zakat?
Zakat is an Arabic word which means "that which purifies." Zakat is the proportion of wealth that a Muslim is obliged to contribute to the community as a religious duty each year. However, the amount varies from person to person, but it is 2.5% of the wealth one possesses above the Nisab.
The Nisab depends on the minimum wealth you have in a different category. For example, the Nisab amount for gold is 3 ounces or 87.48 grams; for silver, 21 ounces or 612.36 grams. Apart from this, Zakat is also incurred on your financial assets and savings that are not sued for your living expenses.
How to Calculate Zakat?
Zakat is like taxes, and the calculation is a bit tricky as we do not pay throughout the year. To calculate, you will need to go through some steps.
Tally Up All the Income
Total up all your source of income and the assets you have owned for the last year. The sources include Gold & Silver, Cash, Investment Property*, Debts Owed to You*, Shares & Stocks*, Business Assets*, and Investment & Saving Funds*. All these sums up your total income for last year.
Items marked with an asterisk (*) have some special instructions and considerations. You should check this Zakat Guide Booklet for details.
Calculate your Living Expenses and Immediate Needs
This will include, Debts You Owe*, Personal & Living Expenses, and Business Expenses*. All these should be your expenses for last year. You will need these for the final calculation.
Find out your total Zakatable Wealth
Now, you just need to subtract the total expense from the total income.
So, the calculation will be your last year's total income – your last year's living expense=, Your Zakatable wealth.
Now find out if it is above the Nisab amount. However, whether you have gold or silver, you will need to find out the current cash amount of your Nisab threshold.
If your Zakatable Wealth exceeds the Nisab threshold, you need to pay Zakat. But, if your Zakatable wealth is less than the Nisab threshold, you don't need to pay Zakat.
The Final Calculation
2.5% of your Zakatable Wealth is your actual Zakat.
Your Zakatable Wealth x 2.5%= total Zakat you need to pay for the year.