What is Zakat & How to Calculate - The Complete Guide

ZAKAT The Basic Understanding


The word “Zakat” is an Arabic word that shows two literary meanings i-e

i. Purification
ii. Growth


It means the purification of soul, character, life and wealth. Zakat purifies the human soul by keeping a person away from illegal sources of earning, eliminating the love for materialism and by overcoming the sense of pride for being wealth. Wealth is dear to everyone but who spends wealth on others attains goodness and purity . As Quran says in Sura al Toubah:

“ take alms out of their property , thou wouldst cleans them and purify them thereby”


It means that a person who pays Zakat regularly , his individual wealth as well as the community wealth keeps on growing by the blessing of the Almighty Allah . Moreover Allah protects the wealth on which Zakat has been paid and in this way the peace of mind of the person who pays Zakat grows.


In economics , Zakat can be technically defined as follows :

“ Zakat is a transfer payment which Sahib –e – Nisab Muslims make at given rates by themselves or through the Islamic state to the poor and the needy in or after the month of Rajab.

ASSESMENT OF ZAKAT - Who should Give Zakat

For the assessment of Zakat, the following must be kept in view.

1. Sahib-e-nisab muslim

A muslim who owns and keeps in his or her possession at least 7.5 tola gold or 52.5 tola silver or cash money to the equivalent value is considered a sahib e nisab muslim . it is his compulsion to pay Zakat at its prescribed rates by Quran and Hadith.

2. Exposed and unexposed wealth

Zakat is paid for two type of wealth i-e

Exposed wealth & Unexposed wealth

Exposed wealth is the wealth which is exposed to the society e.g. agricultural goods , camels , sheep, minerals,etc. on the other hand unexposed wealth is the wealth which remains unexposed to the society e.g. gold , silver , cash , liquid assets etc.

3. The rates of Zakat:

Zakat is paid at the following fixed rates.

a. Gold, silver cash:

For at least 7.5 tola gold , 52.5 tola silver or the equivalent value in terms of business inventories or commercial goods or cash money , the rate of Zakat is 2.5% of the total value of the goods or money.

b. Agriculture:

Zakat which is called usher, is paid at the rate of 10% from the agriculture out put of the land which is irrigated by natural sources and is paid at the rate of 5% from the output of the land which is irrigated by artificial sources like canals , tube wells etc.

c. Animals:

a. Zakat is paid on the commercial animals at the following rates:
b. One goat from 40-120 goats . two goat from 121-200 goats and three goats from 201-300 goats.
c. One cow from each 40 cows.
d. One camel from each 5 camels
d. Minerals

Zakat is paid on mineral e.g. coal , iron , salt , etc at the rate of 20%.

BENEFICIARIES OF ZAKAT - Who can receive Zakat

The following can be beneficiaries of Zakat.

1. The poor:

These are the people who cannot be treated as sahib-e-nisab.

2. The needy:

Theses are the people who are unable to earn their living e.g. handicapped, disable , orphans etc.

3. Collectors of Zakat:

These are the people who collect and distribute Zakat among the poor and the needy . their salaries are paid from the Zakat fund.

4. The new Muslims:

These are the people who have recently converted to Islam.

5. The Slaves:

Zakat can be used to make free the slaves and prisoners of wars from their masters and enemies.

6. The debtors:

People who are heavily indebted can get Zakat to repay their debts provided that the debt is not taken for sinful purpose.

7. The travelers:

The travelers can get Zakat to complete their journey in case they fall in need of money.

8. Mujahideen:

Zakat can also be given to Mujahideen to prepare them for jihad . Also the dependents of the martyrs and the religious educational institutions can seek assistance from the Zakat fund.

Thus, Zakat is a source of financial assistance for the poor and needy persons.


The following facts reflect economic and social importance of Zakat.

1. Purification of soul:

Zakat purifies the soul of contributor from the evils of miser ness . It makes them humble and God-fearing . It also creates wealth discouraging love among people.

2. Healthy growth of community:

Zakat leads to the healthy growth of the economy and the community. It uplifts the less fortunate members of the society.

3. Narrow down the economic inequalities:

Zakat narrows down the economics inequalities in the community to the minimum possible limit. The rich may not grow richer ant he poor poorer.

4. Wider circulation of wealth:

Zakat increases the speedy circulation of wealth . It discourages hoarding and provides an automatic mechanism for the flow of wealth from rich to the poor thus , it widens the circulation of wealth among the community.

5. Main source of income:

Zakat occupies a central position in the financial structure of a muslim state , because it contributes too much towards national treasury and it provides sufficient fund to Govt.

6. Fair distribution of wealth:

Zakat meets an important purpose for spreading and distributing wealth that becomes just and equitable .It guarantees that income is not centralized rather it moves very rapidly among different groups of society.

7. Minimizes unemployment:

Zakat is very vital instrument for removing unemployment .the money received by the people can be used and poor can start a business.

8. Economic stability:

the problem of instability does not take place in an Islamic economy due to the mechanism of Zakat. Zakat promotes the velocity of circulation of money due to which AD for goods and services rises. This determines the level of investment , income and unemployment on stable footing.

9. Self reliance

Zakat eliminates poverty and diversity from the society . It brings amout prosperity .people can take care of each other and in such a way Zakat enables an economy to be self-reliant.

10. Capital accumulation:

By Zakat , people can use their liquid assets to promote capital formation in the country . they invest their assets due to which growth rate of the economy goes up and the country gets prosperity.

11. Mobilization of resources:

such individuals who get income in the shape of Zakat are in a position to utilize the available resources . In this way, maximum use of resources becomes possible.

12. Social security:

Zakat fund not only covers the poor and the disabled, but it also provides social security to the unemployed individuals.

13. Social welfare:

Hospitals, schools and handicrafts centers for the poor can be constructed by making use of Zakat fund. This promotes social welfare in the country.

14. Anti-social activities:

Zakat is paid obviously from rizq-e-halal. thus, the Muslims who pay Zakat refrain themselves from anti-social activities like hoarding, smuggling etc.

15. Control of crimes:

the major cause of crimes particularly theft is due to poverty of people. The problem of poverty can be easily over come by Zakat. In such a way , crime rate can be controlled.

IMPACTS OF ZAKAT on Distribution & Production of Wealth

We observe two major impacts of Zakat:

1. Impact on production of wealth
2. Impact on distribution of wealth


The impact of the Zakat on the production of wealth can be explained as follows.

1. Higher liquid assets:

Zakat discourages hoarding and people can make use of their liquid assets to promote saving , investment and capital formation in the country .They invest in various sectors of the economy as a result aggregate production in the economy goes up.

2. Higher velocity of circulation of money:

Zakat promotes velocity of circulation of money due to which aggregate demand for goods and services increases. It increases the level of investment , income and employment.

3. Higher capital formation:

Zakat is paid on saving which remains accumulated for at least one year. Therefore it brings down the absolute amount of saving with a person .to maintain his consumption standard, he gets stimulus to increase the level of saving . hence , marginal saving goes up which can be used to make additions to the existing capital stock of the country. This will certainly promote production level in the economy.

4. Higher efficiency:

Since, Zakat increase the aggregate demand for consumer goods, consumption function of the community in a macro sense may shift upward. the economy would become more efficient.


The impacts of Zakat on the distribution of wealth can be explained as follows.

1. Automatic and fair distribution:

Since 2.5% of the wealth of rich is transferred to the poor every year in the form of Zakat .It means, whole wealth of the rich is transferred to the poor section of the community in the forty years. This provides an automatic mechanism for the flow of wealth from the rich to the poor, due to which wealth is fairly distributed among different sections of the society.

2. Better allocation of resources:

Transfer of money from the rich to the poor in the form of Zakat would mean that demand for basic necessities of life will increase. This will encourage their production. Scarce resources would be drifted away from production of luxuries to that of necessities .This is better allocation and distribution of scarce resources.

3. Social welfare:

The construction of social welfare institutes with the Zakat fund ensures distributive justice in the economy.

4. Better living standard:

Zakat provides the better quality of life to poor through the process of re-distribution of income.

5. Wider circulation of wealth:

Zakat curtails the ratio of wealth concentration in a few hands.

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