Thursday

Zakat is Mandatory on 4 Caterories of Income

There is consensus among Muslim scholars that it is mandatory on every believer who is financially able. Whoever knowingly denies this obligation, while he possesses the minimum amount, would be considered a disbeliever and a renegade from Islam. Whoever is stingy, or tries to cheat, is considered among the wrongdoers. Zakat is mandatory on four categories of items.
1. Farm produce of seeds and fruits, such as wheat, barley, rice, dates, raisins, cocoa, pistachios, coffee, cashews. Allah (SWT) stated: "O you who believe, give of the good things which you have (honourably) earned, and of the fruits of the earth which We have produced for you..." (Al-Qur'an, 2: 267) Also: "... But render the dues that are proper on the day that the harvest is gathered..." (Al-Qur'an, 6: 141) Thus, these two verses and many others indicate that Zakat is due on farm products that reached the minimum amount (nisaab). No farm product is liable for Zakat unless it is a product that is considered as food and can be stocked or saved naturally without refrigeration. If the produce is perishable fruit, such as grapes, there is no Zakat. But if one sells them they will pay their Zakat on the profit earned when it matures.
The nisaab is 612 kilos, which equals 1,346.40 lb. There is no Zakat on produce that is less than this amount. If the farm produce or crops grow dependant on rainwater, or without any man's labour or irrigation, Zakat due is one-tenth of the total. If it is grown by irrigation, then the Zakat due is half of one-tenth of the total produce. There is no Zakat on fruits like apples or oranges or vegetables which are perishable and need refrigeration for long storage, but they should be considered as any income if the profit earned from their sale reaches the amount of Zakat, then Zakat should be given.
2. Cattle, including camels, cows, sheep and goats, that are freely graze and are raised for trade and production. For Zakat to be obligatory, the number must reach the nisaab. The nisaab of camels is five, of cows 30, of sheep and goats, 40. By freely grazing is meant the animal goes out to feed without the owner buying or bringing it feed or hay. If it is not a grazing animal, there is no Zakat in the stock by itself. The stock will, however, be considered as articles of trade, then will be assessed for Zakat as articles of trade when the profit earned from their sale reaches the amount by itself or in combination with other articles of the trade.
3. Merchandise and goods of trade and commerce. This includes anything that is obtained for the business of buying and selling: land, animals, food provisions, fabric, cars, spare parts, etc. This inventory is evaluated annually and assessed for Zakat, whether the value is the same as the amount spent on it, more, or less. The owners of grocery stores, like any other business, must evaluate every item and give their Zakat. Simple bookkeeping of inventory, orders, cash on hand, and credits, that is non-delinquent loans, will give one a good picture of the Zakatable assets. But if one is unable to account for everything in the store or shop, he should assess it according to his ability until he is sure that his conscience is clear.
There is no Zakat on what is within one's dwelling or property which includes food, drinks, furniture, houses, animals, cars, clothes and shoes. The only exception is gold and silver. There is no Zakat on assets from rentals or lease, whether they are apartment units, taxi cabs, etc. That is, there is no Zakat on the apartment units, buses or cars for rental like yellow cabs company or trucks for rental or equipments. But there is Zakat on the proceeds or incomes from these rental assets if these assets reach the executable amount, either by themselves or in combination with other assets.

Many scholars are of the opinion that any business activity that brings any return to the entrepreneur or investor should be assessed for Zakat. If the activity has a prescribed nisaab, such as gold, silver or paper currency, that nisaab is applied for Zakat. But if the business has no declared nisaab, its nisaab is the nisaab of commerce, one reason being that most business activities are considered as commerce and because, in actual fact, it is not factitious business name, such as GM, Apple or GE that is taxed for Zakat, it is the individual investor. We do not tax cooperations such IBM, Apple, GM or Rajihy Bank but the individual investors, share holders and owners of these corporations.
Indeed, there are enough rules in Zakat books to cover all types of business activity, be it cash or risk investment. If the business activity is analogous to commerce, it should be assessed the same rate as commerce. To subject the business to a different Zakat rate of 10%, which is the rate of farm products instead of its correct rate of 2.5%, the rate of commerce, is unfair and unjustified. Besides, there is no proof, even a weak one, to justify this unfair arbitrary taxation. The difference between 2.5% and 10% is high. The Zakat system is not like a state revenue collection, but Allah's `ebadah. However, if a business person decides to give more than 2.5% after deducting all the expenses including depreciation, Allah (SWT) will accept it from him.
4. Gold and silver, whether used for commerce or jewellery. Allah (SWT) states: "...And there are those who bury gold and silver and spend it not in the way of Allah: announce unto them a most grievous penalty. On the day when heat will be produced out of that (wealth) in the fire of hell, and with it will be branded their foreheads, their flanks and their backs. This is the (treasure) which you buried for yourselves: taste you, then, the (treasures) you buried." (Al-Qur'an, 9: 34-35). By hoarding is meant refusal to give it in the path of Allah, which includes Zakat.
In a hadith reported by Abu Hurairah (R.A.A), the Messenger of Allah (S.A.W) said: "For the owner or possessor of gold and silver who does not fulfil its obligation, on the Day of Resurrection it will be cast into sheets of fire and be branded on his forehead, side and back. Whenever it cools it is to be repeated for him in a day whose length is the length of fifty thousand years, until the judgement is rendered among the people." (Muslim). By its obligation is meant assessing it for Zakat. In another version: "No possessor of a treasure who does not give its Zakat."
Zakat is mandatory in gold and silver, irrespective of its form: in coins, raw or nugget, or jewelry for wearing, or for rent, because of the generality of evidence of Zakat without any detail. In a report by Abdullah bin `Amr bin `Aas (R.A.A), he related that a woman came to the Messenger of Allah with her daughter. On the daughter's wrist were two heavy gold bracelets. The Messenger asked her, "Do you pay Zakat on this?" She replied, "No." The Messenger said: "Would it please you that Allah will encircle you with two bracelets of fire?" The reporter commented that she took them off and threw them down in front of the Messenger, and said: "They are for Allah and his Messenger." (Ahmed, Tirmidhi).
The Messenger's wife reported that: "The Messenger entered into my house and saw in my hand a huge ring made of silver, so he asked, `What is this?' I replied, `I made them to beautify myself for you, O Messenger of Allah.' He inquired, `Do you give their Zakat?' I said, `No,' or `Allah willing.' He said: `It will suffice you in the hellfire.'" (Abu Dawuud).
Zakat is due on gold when it reaches the amount of (nisaab), which is 20 Dinaar. According to a hadith, the Messenger said: "No Zakat on you is due until it reaches 20 dinaar." (Abu Dawud) The Islamic dinaar (currency) is one mithqal, a unit of weight which weighs four and one quarter of a gram. Thus, the nisaab is 85 grams. This is equal to $30.00 US dollars.
Similarly, there is no Zakat on silver until it reaches five oqiyah, because the Messenger said: "There is no Zakat on less then five oqiyah." (Muslim/Bukhari) Oqiyah is equal to forty Islamic dirhams. The nisaab is 200 dirhams. One dirham is equivalent to 595 grams. The Zakatable amount in both the gold and silver is a quarter of a tenth only.