Part III: Charity (Az-Zakat)
Assets Chargeable to Zakat
In the preceding chapter we have made a brief mention of the assets and properties or the things which are chargeable to Zakat. In this chapter we are going to discuss in a little detail all the types of the assets which are subjected to Zakat and how Zakat is levied on them.
The following categories of assets are chargeable to Zakah in the hands of a Muslim:
1) Gold and silver and currency and coins or cash
2) Articles of trade or merchandise
3) Animals (camels, cows, sheep)
4) Agricultural produce (corn, fruits, vegetables, etc.)
5) Treasure trove and mines
6) Buildings and assets given on rent
7) Assets of modern age (stocks, certificates, investments)
I - Zakat on Gold and Silver
Following points need to be remembered with regard to Zakat on gold and silver, coins and currency:-
1- Payment of Zakat is obligatory on gold and silver in whatever form they are. They may be in the form of bullion, they may be in the form of slabs, or in the form of jewellery, or in the form of utensils, or in the form of coins or in any other from, Zakat would be charged on them if they are in the ownership of a Muslim and they make the Nisab and an year has elapsed on their ownership.
2- Nisab of gold is 20 Misqaal or 20 Dinar or 7.5 Tola or 3 ounces or 85 grams. If gold in your hand in any form is equal to that or more than that, it would be subjected to Zakat provided an year has elapsed over your ownership of it.
3- Nisab of Silver is 5 Oqiyah or 200 Dirham or 52.5 Tola or 21 Ounces or 612 grams. If silver in your hand in any form is equal to that or more than that, Zakat would be levied on it provided a year has elapsed after your ownership of it.
4- If gold and silver fulfill their Nisab then fortieth part of it (or 2.5 percent of it) would be paid in Zakat.
5- You can pay Zakat in kind or in cash. If you pay Zakat in kind i.e. Zakat on gold in gold and Zakat on silver in silver, then you will pay fortieth part or 2.5 percent of the total quantity of it as Zakat. But if you want to pay Zakat on gold or silver in cash i.e., in rupees, then you will pay market value of their due quantity in rupees. For example you have 40 Tola gold, you will pay in Zakat either one tola gold or Rs. 60,000/which is the price of one tola gold in the market today.
6- The gold and the silver would be considered separately to determine Nisab of each. They would not be clubbed together.
7- Zakat would also be levied on currency which is in the form of coins of metal or notes of paper as its value does not depend on the metal or paper contained in it, rather it depends on the purchasing power which has been created by the government in it. According to the jurists, currency is actually representative or substitute of gold and silver and the possessor of it can conveniently exchange it for gold or silver at any time he wants. So Zakat would be levied on currency in your possession, whether in form of metallic coins or paper notes, if the value contained in it fulfills the nisab of silver or gold and a year has elapsed on your possession of it. Similarly, Zakat on foreign currency would be levied if it is exchangeable.
Even in the times of the Prophet, gold and silver coins were used as medium of exchange such as Dinar (gold coins) and Dirham (silver coins) and Zakat was collected thereon.
However, if the local currency of coins or foreign currency of coins are no longer legal tender, then Zakat would be levied on it only if gold or silver contained in them fulfill their respective Nisab.
8- Whether ornaments possessed by a woman are chargeable to Zakat? Our answer to this question is “yes”. Zakat is leviable on ornaments or Jewellery possessed by a woman whether she uses it or not as Ahadith of the Prophet available on this issue show. However, we would discuss this question in detail in chapter No. 25
9- If gold and silver are mixed up with some other metal, then Zakat would be levied only on gold and silver if they come up to their Nisab, but the other metal would be ignored. Similarly on the pearls and gems fixed in the ornaments or Jewellery there would be no Zakat.
II - Zakat on articles of trade
Please keep the following points in mind regarding Zakat on merchandise and articles of trade:-
1- From articles of trade we mean those articles or things or goods or assets which are purchased or acquired with the intention to sell them on profit. To make one’s living from business or trade or commerce is a noble profession and according to a Hadith there is much earning in it. An honest businessman would be among those pious persons whom Allah likes on the Day of Resurrection.
2- Some examples of the articles of trade or merchandize are: Food articles, clothes, articles of daily use, shoes, utensils, gold and silver, jewels or precious stones, ornaments, agricultural and industrial goods, medicines, drinks, books, arms or weapons, instruments, mines and metals, animals etc. if one purchases and sells them regularly as a business. Even pieces of land, plots, buildings and houses etc. also become articles of trade and Zakat is payable thereon if they are purchased and sold regularly with intention to earn profits. You can trade in anything provided it is lawful to trade in it in the sight of Islam.
3- The Jurists and the Ulema present the following Ahadith of the Prophet which impose Zakat on articles of trade or merchandize:
a) Samorah bin Jundab reported that the messenger of Allah used to direct us to collect Zakat from that which we counted as merchandise (Abu Daud). According to another version, the Prophet used to instruct us to pay Zakat on the goods which we prepare for trade (Abu Daud, Baihaqi).
b) Abu Zar Ghaffari reported that the messenger of Allah said: Zakat is on camels, Zakat is on sheep, Zakat is on cows, and Zakat is on cloth which is for trade (Abu Daud, Baihaqi).
c) Amr-bin-Hamaas reports from his father: I used to sell leather and arrows. One day Hadhrat Umar passed by me and said to me: Pay Zakat on your goods. I said: I have only leather or arrows. He said: Calculate their value (at the market price). And pay Zakat there on (Masnad Shafi, Dar Qutni).
d) Umar is reported to have imposed Zakat on horses (although the Prophet had exempted them) when he saw during his caliphate that the people were breeding horses on large scale for the purpose of trade.
4- Thus Zakat is obligatory on goods of trade. The Nisab for the goods of trade would be that of silver. It means that if their value is equal to the value of 52.5 tola silver, Zakat would be levied thereon at the rate of 2.5 percent provided a period of one year has passed.
5- The method of calculation of Zakat on the goods of trade is as follows: When a period of one year elapses after the start of business, value of the stock in trade would be computed on the basis of market prices of the goods. Cash in hand and in the bank would be added to it. Debts receivable would be also added to it. From the total, the debts payable would be deducted. The balance value, if it comes to the value of 52.5 tola silver, Zakat would be levied on it at the rate of 2.5 percent.
6- If there are two or more partners in a business, then according to the majority of the jurists, share of each partner in the value of the business as determined above would be calculated and considered in his hands separately.
III- Zakat on Animals
The Prophet of Islam levied Zakat on camels, cows, goats (or sheep). Camel includes female camel. Cow includes ox as well as he and she buffalow. Sheep includes both male and females and also includes males and females of goat. Zakat on the animals belonging to these three categories i.e. camel, cow and sheep is levied only if they are Saimah. It means that they are domestic animals and they are reared for procreation and milk purpose, and they are pastured in a jungle or in a field of pasture. If they are reared in a house by giving them fodder, then there is no Zakat on them. If they are reared for purpose of trade or for purpose of meat, then Zakat as articles of trade would be imposed on them. If these saimah animals belong to a Waqf, then there would be no Zakat on them. Wild animals are exempted from Zakat and so are the animals used as means of conveyance and transport.
Animals produced by cross breeding between domestic and wild animals will be subjected to Zakat provided the female was domestic and the male wild.
Nisab and rate of Zakat in respect of camels, cows and goats is as under:
Camels: Nisab in respect of camels is 5 and rates are as follows:
Number upto 4 No Zakat.
5 to 9 1 goat.
10 to 14 2 goats.
15 to 19 3 goats.
20 to 24 4 goats.
25 to 35 1 one-year-old female camel
36 to 45 1 two year old female camel
46 to 60 1 three-year-old female camel
61 to 75 1 four-year-old female camel
76 to 90 2 two-year-old female camel
91 to 120 2 three-year-old female camel
Thereafter on each 40 2 two-year-old- female camel.
and on each 50 1 three-year-old female camel.
Cows: Nisab of cows is 30 and rates are as follows:
Number upto 29 No Zakat.
From 30 to 39 1 one-year-old male or female calf.
40 to 59 1 Two-year-old male or female calf.
60 to 69 2 one-year-old male or female
70 to 79 1 one-year & 1 two-year-old
80 to 89 2 Two-year-old
90 to 99 3 one-year-old
100 to 109 1 two-year & 1 one-year-old
110 to 119 2 two-year & 1 one-year-old
120 to 129 3 two-year or 4 one-year-old
Thereafter on each 30 1 one-year-old
and on each 40 1 two-year-old
Goats: Nisab of goats or sheep is 40 and the rates of Zakat are as follows:
Number upto 40 No Zakat.
From 40 to 120 1 goat
121 to 200 2 goats
200 to 300 3 goats
Thereafter on each 100 1 goat
IV - Zakat on Agricultural Produce
Majority of the people in our country are engaged in agriculture. So Zakat on agricultural produce, which is popularly called Ushr, is a matter of concern for many of us. Because of the importance of agriculture, we have dealt with this topic in the next chapter separately.
V - Zakat on Mines and Treasure - Trove
Zakat on mines, treasure trove and things extracted from sea is discussed separately as under:
1- Mines: Produce of the mines or mineral wealth are charged to Zakat under the Islamic system of taxation. However there is a difference of opinion among the jurists about the rates of tax to be levied. According to Shafii and Hambli schools of jurisprudence, mines are to be charged to Zakat at the rate of 2.5%. However Hanafi Jurists hold that the mines are to be treated as spoils and are subject to Khumus or tax at 20%. Hanafi doctors are also of the view that only those mines can be charged to tax which are solid, may be melted and admit of imprints. So gold, silver, copper, iron etc. are to be subjected to tax, while coal, oil and gypsum are exempt.
The view of the Hanafites is based on the Hadith which has been reported by Imam Abu Yusuf. According to him the Prophet (PBUH) was asked what is rikaz and he said: “That gold and silver which has been placed by Allah in the crust of the earth (means minerals)”.
Some of the principles regulating this tax are discussed as follows:
1) Produce of the mines discovered in one’s residence or place of habitation is not charged to tax because house or residence is exempt from tax. But the produce of the mines found in one’s land is subjected to tax.
2) A Muslim or a Zimmi, who discovers a mine, would get four-fifth himself and would surrender one – fifth to the Islamic state.
3) In case of a Harbi or a non-resident person, the share of the state and the share of the finder would be according to the agreement made between the Caliph and the finder.
2- Treasure – Trove: Treasure – Trove is called Rikaz in Arabic. Such treasures which are to be presumed to be of pre-Islamic origin are taxed at the rate of 20% by the Islamic state. The finder or discoverer of such treasures, be he a Muslim or a Zimmi, gets four-fifth while one-fifth goes to the state. In case the finder is a Mustamin (non-citizen), he gets nothing and the whole treasure would belong to the Islamic state.
Khumus on buried treasure or treasure-trove is levied on the strength of the following tradition of the Prophet Muhammad (PBUH): Abu Hurairah reported that the Messenger of Allah said: “The wounds caused by animals are exempted, well is exempted and mines are exempted, and there is one-fifth due from the buried treasure” – (Bukhari, Muslim).
It is also reported that the Prophet, when he was asked about a treasure found in ancient waste land, said: “on this and on rikaz the fifth lies”.
3- Things extracted from the sea: The jurists differ about the taxability of the extractions from sea like pearls, ambergris, etc. Some hold that these are not taxable, while others maintain that Khumus lies on these products since these are comparable to minerals found in waste lands. It is reported that Hadrat Umar levied Khumus on the pearls and other such like produce of the sea and appointed Hadrat Yaali-b-Ummayah as tax collector. The justification for this had been provided by Hadrat Abdullah-b-Abbas. Caliph Harun-al-Rashid regularized this levy with the advice of Imam Abu Yusuf.
VI - Zakat on Modern Assets
Industrial revolution has brought in its wake certain properties and assets which were not known in the early days of Islam. Such properties of the modern age are industrial machinery, bank or currency notes, bank deposits, bonds, securities, shares, stocks, debentures, certificates of credit, bills of exchange, insurance policies, and provident funds.
1. Industires or factories: Machinery installed in a factory and land and building of a factory or for that purpose the fixed assets of a factory would be exempted from Zakat on the analogy of agricultural land. However on the analogy of agricultural produce, the produce of factories is liable to the levy of Ushr. Since much labour and capital is involved in the produce of the factories, half ushr, i.e., five percent of the entire factory produce should be collected by the Islamic state as Zakat.
2. Bank notes, currency, bank deposits, etc.: Zakat at the rate of 2.5% would be levied on cash, currency of all forms, bank notes, bank deposits, etc. provided the conditions regarding nisab and holding period of one year are fulfilled. Nisab of silver would apply to such assets. However, some modern thinkers maintain that the bank deposits should be treated like Amwal-e-Batinah (invisible property) and instead of collection of Zakat by the state, the owner should be left of his own to pay Zakat voluntarily. ‘Al Fiqh ‘Alal Madhahib al Arba’a’ subjects paper money to the levy of Zakat on the ground that it represents gold and silver and it can be freely exchanged for gold and silver in the market.
3. Shares, stocks, securities, bonds, debentures, certificates of deposits, investments, etc.: Shares and stocks of joint stock companies and securities, bonds, debentures, certificates etc. issued by the governments, local authorities, corporations, companies or other institutions, form lucrative assets these days and attract large amounts of investments. According to some of the modern jurists, these assets should not be charged to Zakat and only their profit and dividend should be charged to Zakat. However, the predominant opinion of the majority is that such assets should be charged to Zakat, though the Zakat should be collected at the time of payment of profits on these assets.
4. Insurance policies and provident funds: In case the contributions to insurance policies and provident funds are compulsory, Zakat would be paid only when their amounts are received by the assessees. But in case of voluntary contributions to such policies and funds, in the opinion of Syed Abul Ala Maududi, Zakat on the accumulated deposit in these policies or funds should be levied on year to year basis.
VII - Zakat on Assets rented out
In the modern times almost everything is available on rent or lease. Land, building, house, shop, machinery, factory, motor car, electronics like TV or refrigerator, furniture, clothes, ornaments, etc. are available for hire. There is almost a consensus among the Jurists and Ulema that Zakat should be levied on such assets.
However, the problem is how to levy Zakat, whether it should be levied on the value of the assets or on the rental or lease money? There is difference of opinion on this issue. Some say that Zakat should be levied on the value of the asset, but many of the jurists favour the idea of charging Zakat on the rentals. Their opinion is that the asset itself is a factor of production and it should be exempted from Zakat as agricultural land being factor of production is exempted. But the rent or lease money received from it should be subjected to Zakat as produce from agricultural land is subjected to Zakat.
Then arises the question of Nisab. On this question also many of the jurists say that Nisab of silver would apply. If the rent received by letting out, e.g. a house or a shop, in a year comes up to price of 52.5 tola silver or exceeds it, then Zakat would be levied thereon.
Then again the question of rate of Zakat arises. Some jurists say that rate of Zakat on gross rental receipts should be 10 percent because the asset is being exempted from Zakat like agricultural land and rent is being charged to Zakat as agricultural produce. But many jurists suggests a rather very lenient treatment. According to them Zakat should be imposed at the normal rate of 2.5% and that too on the amount which is saved out of the rent at the end of the year and not on gross rental receipts. However, we donot agree with both these opinions. In our view, the rate of Zakat may be 2.5 percent but Zakat should be levied on the gross rental receipts and not on the amount saved at the end of the year.
VIII - Zakat and Treatment of Debts
At the time of computation of the nisab and calculation of Zakat, debts payable by the assessee and debts receivable by him are treated as follows:
1) DEBTS PAYBLE: Debts payable by the assessee (Zakat payer) are deducted from his wealth and the remaining wealth, if it completes nisab, is subjected to Zakat. No distinction is, however, made between the personal debts or business debts. Every debt (besides Mahr) which the assessee owes to others, is eligible for deduction. Mahr can also be deducted provided the assessee intends to pay it on demand by his wife.
When nisab in several kinds of property is owned by a person who also owes a debt, he should first apply the debt against the gold and silver currency, then against the articles of trade and then against animals. Debt is deductible against the property which is chargeable to Zakat and not against the property which is exempt from Zakat.
The generally accepted view is that in case of a secured debt, the debt should be deducted from the asset against which it has been secured. Again, if a debt has been obtained for the purpose of investment, then it should be deduced from the asset which has been created by that investment.
2) DEBTS RECEIVABLE: Debts which are receivable by the Zakat payer i.e., which are due to him from others, are treated on the strength of claim they contain. In this respect, debts receivable have been categorized by the Islamic jurists into three classes, namely, strong debts, medium debts and weak debts.
Strong debts comprise of those claims which arise on account of loans in cash, in gold or silver or in consideration of sale of articles of trade. Medium debts mean those claims which are due on account of property other than articles of trade like personal clothes. Such property, if it had remained in the possession of the assessee, would not have attracted Zakat. Weak debts are those which arise in consideration of other than property or loans, e.g., Mahr due to the wife, consideration of Khulla due to the husband, diyyat for murder, etc.
All types of debts receivable are included in the other wealth of the assessee for levy of Zakat. If the assessee does not own any wealth other than these debts, then the debts would be chargeable provided they complete nisab. However, in case of strong debts, Zakat would be paid only when an amount, at least, equal to 20% of the nisab of silver is recovered. Zakat would be paid only on the amount recovered and for its past year also. In the case of medium debts, Zakat would be paid when an amount equal to the nisab of silver is received and Zakat is paid for the received amount and for its past years also. Finally, in the case of weak debts, Zakat would be paid when an amount equal to nisab of silver is collected and a year has elapsed after its collection. But Zakat for past years would not be paid.
Assets which are exempted from Zakat
We have already provided a list showing the categories and types of assets which are exempted from Zakat in chapter No. 21 at serial No. 7.
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