Zakat Calculation Instructions

ZAKAT
The Third Pillar of Islam

"[In their] wealth, there is a
known share for the beggars
and the destitute." - Qur'an

Instructions For Zakat Calculation Forms
Taken from the book “Zakat Calculation”. Copyright (c) The Islamic Foundation, Leicester, UK. All rights reserved.

These instructions are applicable for both the Short Form and the Comprehensive Form.

Before you can calculate your zakat, you must first establish your zakat year. Many Muslims calculate zakat during Ramadan for the added reward of worshipping during this blessed month. So, an example of the zakat year may be from Ramadan 11, 1423 to Ramadan 10, 1424. Since these dates are important in the calculation of zakat, it would be preferable not to use the first or the last day of the month in the date range for the zakat year due to the variability of number of days in the lunar month. Once a zakat year is established, the same date range should be used for future zakat years. For Hijra to Gregorian date conversion, click on www.geocities.com/mahazislami/convert.htm.

A standard deduction amount that is needed to fulfill the basic necessities of the individual and his or her dependents should be agreed upon by the Islamic scholars or the fiqh council of the state or the area. If such an agreed-upon amount is not available, then this table may be used by the zakat payer to calculate his or her standard deduction.

D1
For cost of housing, utilities, transportation, food and other basic necessities, the amount needed to maintain the basic minimum standard for the zakat payer and his/her dependents should be used, and not the actual cost which may be considerably higher. If the actual cost (during the zakat year) happens to be less than the standard minimum cost, then the actual cost should be used. For example, the housing and utility cost will be $0 for a wife whose needs are provided for by her husband. The cost for a lunar year can be calculated by multiplying the cost for a Gregorian (solar) year by 0.967.

For medical costs that are deemed necessary, use the actual amount spent. Do not include the premium for medical insurance if you have already subtracted it from your earnings (in line E12).

D2
Do not include business debts or debts that have already been paid. Business debts should be considered when calculating zakat on business income and trading goods. Short-term credit card balance due to day-to-day charges for food and basic necessities should not be included as “debt” since standard deduction already includes the cost of basic necessities. To be exempt from zakat, debt should be due to necessity and only that portion of the loan amount should be considered the “original loan amount” that is below the limit of extravagance. For instance, if one buys a house for $500,000 while the price of a mediocre house is $200,000 in a certain area, then $200,000 should be considered the “loan amount”. See “Debt” on page 31 of the "Zakat Calculation" book for more discussion.

D3
All payments should be considered as applied towards the original loan amount. Payments should therefore reduce the capital debt by the full payment amounts for the purpose of assessing zakat-exempt debts. This is because interest payments, in the case mortgage loans, are not recognized as lawful expenditure. Secondly, since a very little part of the monthly payments are applied to the capital, the capital loan is reduced very slowly and therefore remains large and outstanding for as long as 30 years. If payments made are not recognized as fully applied against the capital debt, then this large outstanding debt will make many people exempt from zakat for many years despite their earning substantial income and living a lavish life-style. This would deprive the poor and the needy from receiving their due share from the wealth of many zakat payers.

Debt calculation due to purchasing residential houses and cars are quite common for many zakat payers, and hence it would he helpful to illustrate this using an example. Let us assume that someone purchased a house for $200,000. He made a down payment of $10,000 and financed the remaining $190,000. The loan will be repayable in 30 years by paying $1,500 per month (excluding insurance and other charges). Assuming that he has been paying for the last 10 years (120 payments), his remaining debt on the house for the purpose of calculating zakat will be:

Original loan amount (not to exceed the price of a modest house)	$190,000
Total payments made ($1,500 x 120 months)	-$180,000
Zakat exempt debt is	$10,000

If he bought the house for a much higher price while $200,000 is the price of a modest house, then the loan amount will still be considered $200,000. Again, whether a loan was taken with or without finance charges, all payments will be considered applied against the original loan amount for the purpose of assessing zakat-exempt debts.

Nisab on money is the value of 85g or 2.73oz of gold. As of 1/3/2004, the value of 2.73oz of gold was $1252 at the rate $458 per ounce. Current US gold prices can be obtained at www.goldinfo.net. Check this website and obtain the latest gold price and then calculate the nisab on money.

Nisab on gold and jewelry and trading goods (inventoried items) ia also the value of 85g of gold.

S1 – S2
Find your total cash and bank balances you had as of the last day of the previous zakat year, which is one day prior to the beginning of the current zakat year. This would be the amount – after subtracting the past year’s zakat due – that you likely have kept throughout the zakat year, unless it has been reduced later.

S4
Find your total cash and bank balances as of the last day of the current zakat year for which you are calculating zakat. Your bank balance should also include any uninvested cash that is available in your stockbroker account.

S5
The lesser of S3 and S4 is the actual savings amount that you have kept throughout the zakat year.

S6
Include outstanding loan amounts that people owe to you and are expected to be paid. Do not include any loan that originated during the zakat year, that is on or after the start date of the current zakat year (the “From” date). Also, do not include loans and credits owed to your business.

S20
This is your zakatable savings before any consideration for nisab or deduction for minimum living standard, which will be considered after combining all liquid money assets together in the Money section.

S22
M25 represents the zakatable amount of all the four money assets (Savings, Earned Income, Business, and Shares) together. If it is zero, then no zakat is due on these money assets. In that case, the entire money in S20 is deductible; hence S20 should be entered in S22 to offset the amount. If M25 is greater than zero, then calculate the proportionate amount of deduction to be applied here against zakatable savings by multiplying M22 (total deduction for money) by S20 (zakatable savings) and dividing the result by M20 (total of all four money assets).

E1 – E5
Only those earnings should be included that occurred during the zakat year for which you are calculating zakat. It is recommended that the “pay date” on the check stub be used in determining which earnings fall in the zakat year. Cash earnings (such as tips) should be included based on when the cash was received.

If you are self-employed and receive a salary from your business, then include that as well.

Do not include non-earned income here, such as profit from business, rent income, earnings from shares, etc. If you have these types of zakatable assets, then you must use the "Comprehensive Form" in the "Zakat Calculation" book.

E7 – E9
Taxes should be taken out from the gross income, since zakat is due on the net amount only. For further discussion on this, see "Net Earnings vs. Gross Earnings" on page 44 of the "Zakat Calculaion" book.

The tax amount should be adjusted in consideration of additional taxes due or refund due during the time of the tax return. This can only be estimated since the zakat year will likely not synchronize with the tax year, which will include a different set of earnings.

E12
Non-voluntary deductions, such as income tax, Social Security and Medicare deductions should be deducted from the gross income. Pension contribution is a voluntary deduction, hence it is not included. Health insurance deduction is also non-voluntary. However, in our opinion, this may be considered as a medical expense when calculating standard deductions.

E20
This shows the net zakatable earnings before any consideration for nisab or deduction for minimum living standard, which will be considered after combining all liquid money assets together in the Money section.

E22
See S22 for explanation.

BUSINESS INCOME

B1
If you have a business, then include all revenue made during the zakat year. If you receive rent from rental properties, include also the rents you received during the zakat year. If you have business merchandise and trading goods, then zakat on those will be calculated separately in the Trading Goods section. For discussion about zakat on business, see "Business Goods and Business Income" on page 27 of the "Zakat Calculation" book.

B2
Include all business expenses, such as payroll, rent, utility, taxes, supplies, merchandise, amortization, and bad debts that occurred during the zakat year. If the exact amount is not known for an item, use a reasonable estimate. If you received salary from your business, then include that as part of the payroll expenses. Also include estimated income taxes that you will have to pay on the net income, if any, from these specific earnings that are included here.

If you received rent from rental properties, then include all associated expenses, such as repairs, insurance, loan payments, property tax, and estimated income tax on the rent.

B4
If you have several businesses with different amounts of shares in them, then do B1 thru B4 for each business to calculate the net income separately. Then add all the net income together, subtract estimated income taxes, and enter the result in B20.

B22
See S22 for explanation.

SHARES AND BONDS

H1
Include only those shares and bonds that you owned on the last day of the previous zakat year, and use the market value as of that date. Purchases made during this year should not be included in this. See "Determining the Value of A Given Asset" on page 30 of the "Zakat Calculation" book about assessing the value of shares and bonds.

H2
Include all shares and bonds that you owned on the last day of the current zakat year, and use the market value as of that date.

H3
The lesser of H1 and H3 is the value of shares and bonds that you have maintained for one year, which is subject to zakat. For further discussion, see "Shares and Bonds" on page 53 of the "Zakat Calculation" book.

H4
Include only those earnings that occurred within the zakat year. If any part of the earning was re-invested into purchasing stocks or bonds during the zakat year, then exclude that portion from the earning. This is to avoid duplication of zakat since line H2 already includes the value of all stocks and bonds.

H6
Include all associated expenses, including estimated income tax on earnings and capital gains.

H22
See S22 for explanation.

This section adds together all the zakatable liquid money assets that were determined in the Savings, Earned Income, Business, and Shares sections. After subtracting the necessary deductions, if the total sum reaches nisab on money, then zakat is due on money. In that case, zakat will be calculated on each of these money assets separately (since the rate of zakat on these assets varies) after proportionately distributing the available deduction amount against these assets.

M20
Add together all the zakatable money assets that were determined in the Savings, Earned Income, Business and Shares sections.

M21
Get the total deduction available from line DD of the Deduction Distribution Worksheet .

M22
The lesser of the asset (M20) and the available deduction amount (M21) is the actual deduction that is applied against the asset. Enter this amount M22 and also in line DM of the Deduction Distribution Worksheet.

M25
After subtracting the deduction from the total gross zakatable money, what is left is subject to zakat. Compare this with the nisab for money shown in Line NM of the Nisab Table. If it is less than nisab, then no zakat is due on any of the four money assets, i.e., Savings, Earned Income, Business, and Shares.

Note: If you are calculating zakat on Savings, Earned Income, and Shares only (i.e., Jewelry, Business, and Trading Goods sections are not applicable to you), then you can choose to complete your calculation now by multiplying M25 by 0.025 and skipping to F25. Or you can continue if you like. In both cases, your zakat will be the same.

J1
Include any jewelry that is beyond customary use within your social status, since what is subject to zakat is the jewelry that is extravagant or kept as stored wealth, not the jewelry that is for personal use. Precious stones, such as diamonds, are also included if they are beyond customary use. Men are prohibited to wear golden or precious jewelry; hence their entire jewelry is subject to zakat.

Only that jewelry should be included that is owned since the prior year-end date, and use the market value as of the current year-end date.

J2
This includes all gold and gold-made items owned since the prior year-end date. Use the market value as of the current year-end date.

J21 - J22
After subtracting the deduction already applied against money (DM) from the total available deduction (DD), what is left is the available deduction (J21). The lesser of this and the value of zakatable gold and jewelry (J20) is the actual deduction that can be applied against this asset. Enter this amount in J22 and also in line DJ of the Deduction Distribution Worksheet.

T1
Trading goods include any economic good or property that is intended for resale, such as business inventory, real estate property, machinery, clothing, foodstuff, etc. Fixed assets that are not for sale but are utilized by the business to generate revenue are not considered trading goods.

Enter the estimated value of the trading goods that you owned on the prior year-end date. Use the market value as of the prior year-end date. See "Determining the Value of A Given Asset" on page 30 of the "Zakat Calculation" book for assessing the value of trading goods.

T2
Enter the estimated value of trading goods that you own as of the current year-end date, and use the market value as of that date.

T3
The lesser of T1 and T2 is the value of trading goods that you have maintained for one year, which is subject to zakat. For more discussion, see "Business Goods and Business Income" on page 27 of the "Zakat Calculation" book.

T4
Enter all outstanding debts against the trading goods. Do not include any debt that has already been included in the Deduction Table.

T21 - T22
After subtracting the deduction already applied against money (DM) and jewelry (DJ) from the total available deduction (DD), what is left is the available deduction (T21). The lesser of this and the value of zakatable trading goods (T20) is the actual deduction that can be applied against this asset. Enter this amount in T22 and also in line DT of the Deduction Distribution Worksheet.

FINAL CALCULATION

F1 - F6
Zakat on savings, earned income, shares and bonds, gold, jewelry, and trading goods is 2.5%. On business income including rent, zakat is 10% of the net income.

You can obtain a copy of the Zakat Calculation book from www.IslamicBookstore.com (410-265-0020) or directly from the publisher at www.islamic-foundation.com. If you cannot find a copy, contact zakat@zakatinfo.com. All proceeds from this book benefit a reputable Islamic organization.