One of the most important principles of Islam is that all things belong to God, and that wealth is therefore held by human beings in trust. The word zakat means both ‘purification’ and ‘growth’. Our possessions are purified by setting aside a proportion for those in need, and like the pruning of plants, this cutting back balances and encourages new growth.

Each Muslim calculates his or her own zakat individually. For most purposes, this involves the payment each year of two and a half percent of one’s capital.

A pious person may also give as much as he or she pleases as "sadaqa" another form of charity, and does so preferably in secret. Although this word can be translated as ‘voluntary charity’ it has a wider meaning. The Prophet (peace be upon him) said, "Even greeting your brother with a smile and cheerful face is charity."

The Prophet (peace be upon him) said, "Charity is a necessity for every Muslim." He was asked: ‘What if a person has nothing?’ The Prophet (peace be upon him) replied, "He should work with his own hands for his benefit and then give something out of such earnings in charity." The Companions asked: ‘What if he is not able to work?’ The Prophet (peace be upon him) said, "He should help the poor and needy." The Companions further asked ‘What if he cannot do even that?’ The Prophet (peace be upon him) said, "He should urge others to do good." The Companions said ‘What if he lacks that also?’ The Prophet (peace be upon him) said, "He should restrain himself from doing evil, that is also charity."

By paying Zakat, we purify and cleanse our wealth and money. In the Qur’an, very often Salat and Zakat are mentioned together. It is not an ordinary tax that governments levy on people. It is rather an act of worship like Salat, Saum and Hajj. Zakat is third pillar of Islam and is obligatory (Fard) on every Muslim whose wealth reaches a fixed amount for the year (that fixed amount is called Nisab). If a Muslim’s wealth is above that limit, he/she has to pay Zakat.

Nisab is the minimum exemption limit of net wealth or saving (wealth or assets) over and beyond which Zakat becomes obligatory at the rate of 2.5% (on savings) annually. This amount (Nisab) should be with the person for a full year.

Narrated by Umar that the Messenger of Allah said, “A person may acquire a property by any lawful means he likes, but unless a full year passes over his wealth, he will be exempt from zakat.” (Hadith Tirmidhi)

If a person has the net wealth equal to or above the Nisab in the beginning of the year, but that net wealth decreases from Nisab for a short period of time, and increases again at the end of the year, he/she should pay Zakat. Basic purpose of Zakat system in Islamic society is to maintain an economic balance and circulation of wealth in the society.

Zakat for the business property should be paid at a rate of 2.5% based upon its price relative to silver or gold prices. For stock, we need to calculate approximately the value of stocks after one full year from the date of investment of those stocks. If we have some cash in hand, we should include this cash to find Nisab and pay Zakat if this is equal to or more than Nisab for that year. If the value suddenly rises after that time, the Zakat will start from the date the value increased.

Zakat is not payable on combined assets of a business partnership. But Zakat should be paid by each partner separately based upon the share value of each partner. There is no Zakat on business and the machinery used in that business. In the case of stocks in different retirement plans, Zakat is payable at a rate of 2.5% only when money is cashed. In stocks where one can get cash whenever he/she wants, Zakat is payable whenever money or value of stocks is matured for one year.

Zakat should be paid on any form of gold or silver (ladies ornaments, gold threads decorated dresses, coins or other forms) that is not in normal use and more than Nisab at a rate of 2.5%.

Zakat on agricultural products and animals like cows, camels, goats and others is based upon different Nisab and is not the subject of this topic. Please look in to books specific for Zakat on this topic.

Overall it is the sincerity and self-esteem of the person that matters the most while paying Zakat. If Allah has given enough to donate and give Zakat, we should always be generous to return His trust. Since this money is for good cause, Muslims should pay Zakat as well as charity without looking for excuses. Easiest way of calculating Zakat is to determine the current value of gold and the total value of assets in hand. Calculate based upon Nisab as 3 oz gold and give zakat as 2.5% of the total value. However, necessary things for personal use like house, car and animals are exempt from Zakat. Similarly anything used in business is exempt from Zakat but it is payable on the profit or material obtained from the business.

• Poor (helpless who do not have enough means for their needs but never ask for help).
• Needy Muslims (orphans, widows, the aged, jobless and those affected by unexpected damages of any disaster).
• Collectors of Zakat (the employees responsible to collect, distribute and maintain Zakat accounts are eligible even when they have enough wealth that they possess Nisab).
• New converts who may have suffered financial hardships and they need help.
• Freeing prisoners of war or slaves captured in war.
• Muslims who are burdened with genuine debts and they have no means to clear their debt.
• In the path of Allah (to defend and propagate Islam, many scholars are of the view that students can be considered as eligible to receive zakat in this category.).
• The traveler (a stranded person on a journey who needs help).

Zakat-al-Fitr (fitr means breaking the fast and Zakat-al-fitr is the charity given for completing whole fasting month) is wajib (a required charity) on every Muslim (adult or child, male or female) who has enough food over and above his needs. Zakatul Fitr (many times called Fitra) should be paid either at the conclusion of Ramadan month, or better during the month of Ramadan. However, it must be paid before the Salat of Eid-ul-Fitr. It is paid to poor and needy people so that they can also share the happiness of Eid with other Muslims. The head of household is responsible to pay Zakat-at-Fitr for all the dependents, including newborn children and old persons in the family.

Zakat-al-Fitr can be paid in different ways. During the life of Prophet Mohammad , the amount of Zakat-al-Fitr per person was one sa’, which in today’s material value is equivalent to about three kilograms of grain. This grain can be of barley, corn, rice, wheat, or any other food. It can also be paid in equivalent amount of cash. Depending upon the value of 3 kilograms of grains, the amount of Zakat-al-Fitr is fixed every year (in today’s life, it ranges from $3 to $6 per person and is normally paid in cash. Since a needy person can use money according to the needs, cash payment of Zakatul Fitr is more beneficial in today’s life).

Zakat-al-Fitr has many purposes. This provides an opportunity to the poor to participate in the celebrations of Eid-ul-Fitr, and provides a happy moment for everyone. Payment of Zakat-al-Fitr purifies our fast and compensates for any deficiencies during our fasting month.