Home PodcastAshraf Garda Calculating Zakaat 

Calculating Zakaat 

by Luqmaan Rawat

Johannesburg – Zakaat is a monetary devotion and an Ibaadat that has been made compulsory upon a Muslim. Zakaat means to increase and to purify one’s wealth. 

Zakaat is Fardh [compulsory] for every person who has wealth at or above the Nisaab amount for one lunar year to give 2.5% of their wealth for Allah (SWT). Nabi (SAW) issued a stern warning for those who do not pay their Zakaat. 

Zakaat can only be paid by an individual who owns wealth above the Nisaab amount, R8600, for one complete lunar year [12 months]. A common misconception is that the wealth has to be in a person’s possession for a complete lunar year. Rather, if one has above the Nisaab amount at the time Zakaat is due, then Zakaat should be paid on it. Also, Zakaat is calculated using one’s surplus wealth.  

Zakaat is 2.5% of a person’s wealth after they have deducted their liabilities from it. When it comes to paying Zakaat on investments, it is important to establish whether it is sharia compliant or not. 

If it is sharia compliant then one needs to look at all the assets the company has that is “Zakaatable”. However, one cannot ask a company to open up their books for them and show them every Zakaatable asset so in this case, according to Showkat Mukadam, SANZAF National Second Deputy Chairperson, one will look at the market value of the share.  

“Most scholars then say you always pay on the market value of those assets as opposed to wanting to look for the Zakaatable assets in these institutions. In other words, if you invest in endowment policies for example, it’s impossible for you to get the makeup of the figures in the month of Ramadan. Rather pay in the market value of unit trust endowment policies and so on. All you have to do is look at your statement that you get from the institution and add the market value to your other assets which are Zakaatable, whichever other form you have with a business, deduct your liabilities and you pay your 2.5% on that figure.” 

Zakaat on non-shariah compliant assets

However, this changes when it is a non-shariah compliant asset. One will need to look at how much money they have contributed towards the asset and pay Zakaat on that, said Mukadam. 

“You pay on the contributions you’ve made to that investment. For example, if you are paying R1000 a month to a particular unit trust and it’s not sharia compliant, you go back to the starting point and you add up all the contributions you paid and you then add that to your surplus wealth.” 

That is concerning local investments. What happens when you invest overseas? In this case one will assess what their share is worth in rand value on the day they wish to pay their Zakaat. Just like an investment made locally, the same principles will apply overseas with regards to it being shariah compliant or non-shariah compliant, said Mukadam. 

When one starts working for a company, generally a provident, pension or retirement fund is set up for them. Most of the time, the company makes it compulsory for the employee to contribute to the fund set up and it is because of this compulsory nature, according to  Fayruz Mohamed, SANZAF National Chairperson, deems it not Zakaatable. However, this changes when the contribution becomes voluntary. 

“While you are employed at this company, the value of this pension or provident fund generally is not the Zakaatable because of this compulsory nature. However, with retirement annuities though this usually arises on a discretion in nature when individuals also wanting to save for retirement, would voluntarily contribute towards a retirement annuity and because of this discretionary nature the net realisable value of this fund will be Zakaatable every year.”  

Even though the retirement annuity is locked in, and one can’t use their funds until they reach the age of 65, because it was a voluntary contribution and it was set up by yourself, Zakaat will have to be paid for it. The opposite is said about a fund that you are being forced to contribute to. Since it is being forced upon you by the company, Zakaat will not have to be paid on it while you work for the company. 

More about retirement annuities and other funds

However, once you leave that company that policy will come to an end and that money will be yours. Mohamed explained that government legislation prevents one from taking more than a third of that fund for their own use. The two thirds that is locked away will not be Zakaatable, however should one decide to not take their portion and instead put it back, Zakaat will have to be paid for it. 

 “If you decide to withdraw the money you then have to follow the normal conditions, but if you decide to leave that one-third invested in your preservation fund, now you’ve made that voluntary decision to lock it in again because now you won’t have access to that money until you reach retirement. That one third will be Zakaatable every year at its net value.” 

 If one has a retirement fund that is non-shariah compliant, if it is done voluntarily, then one will have to add up all their contributions they have made to the fund and pay Zakaat on that amount, said Mukadam. 

 An important thing to understand is that if one decides to go over and beyond the contribution to their fund that is stipulated by the company, regardless of if it is compulsory to contribute, they will have to pay Zakaat on that extra amount, explained Mohamed. 

 “If you decide to increase that contribution, that is beyond the contractual obligation in terms of what you are required, then that voluntary portion of that fund will then become Zakaatable. You will now have to enquire, every single year, from the broker what that value of that contribution is every year and the growth thereof because you will now be viable to pay Zakaat on that portion of the fund.” 

 Sometimes traders feel that they can use the excuse that they don’t have money so they can’t pay Zakaat. However, Islam allows stock to be paid in lieu of money provided that the stock is new and of usable condition.  Ashraf Garda spoke with Showkat Mukadam and Fayruz Mohamed about Zakaat, listen to the full interview here.

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