Zakat, the wealth tax for the poor

Zakat is the third pillar and the most concrete. Once you hold wealth above a minimum threshold for a full lunar year, you owe 2.5 percent of it to specific categories of recipients named in the Quran. Not a suggestion, an obligation.

“Take from their wealth a charity by which you purify them and cause them to increase.”

— Quran 9:103

When you owe it

Two conditions:

• Your qualifying wealth is above a threshold called nisab. The nisab is roughly the value of 85 grams of gold, or 595 grams of silver. Most scholars today use silver, because it triggers zakat sooner and favours the poor. At current prices that is a few hundred dollars.
• You have held that wealth for a full lunar year (hawl), roughly 354 days.

If you have never held savings above nisab for a full year, you do not yet owe zakat. Once you cross the threshold and stay above it for a lunar year, the clock starts.

What counts

• Cash, in bank accounts and physical
• Gold, silver, and jewellery (opinions differ on personal-use jewellery; Hanafis include it, most other schools exclude it if actively used)
• Stocks, ETFs, crypto (at current market value)
• Retirement accounts (only the vested, accessible portion, according to mainstream contemporary scholars)
• Money owed to you that is likely to be repaid
• Business inventory at market value

What does not count

• Your primary home
• Your personal car
• Household items, clothes, tools of your trade
• Debts that are owed to you but unlikely to be repaid (uncertain)

The calculation

• Add up all qualifying assets on your zakat-anniversary day.
• Subtract liabilities that are due soon (current credit card debt, bills due, current year's mortgage payments for long-term debt).
• If the result is above nisab, multiply by 0.025. That is your zakat.

The Quran lists eight categories of people who can receive zakat (9:60): the poor, the needy, those administering zakat, those whose hearts are to be won, freeing captives, those in debt, in the path of Allah, and the stranded traveller. In practice most Muslims give through organisations (Islamic Relief, NZF UK, Penny Appeal) that distribute it according to these categories.

Barakah has a full zakat calculator built in. Add your assets and liabilities and it will do the math and normalise to your chosen currency automatically.