Zakat is an obligatory act ordained by Allah (The Glorified and Exalted) to be performed by every adult and able bodied Muslim. It is an important pillar among the five pillars of Islam. Zakat is a part of the wealth and property that Muslims must pay annually, to help the poor of their community. One of the main purposes of Zakat is to keep those who are wealthy clean, monetarily, from sin. It is a form of Sadaqah (charity) which is obligatory on Muslims.

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1.0 What is Zakat (Obligatory charity for Muslims)?

• Zakat is an important pillar among the five pillars of Islam. 
• It is an obligatory act ordained by Allah (The Glorified and Exalted) to be performed by every adult and able bodied Muslim.
• It is levied on specific assets only, identified by Shariah (Islamic Law) as assets having the potential for growth.
• It is a part of the wealth and property that Muslims must pay annually, to help the poor of their community.
• It is levied at the rate of 2.5% each year (calculated according to the lunar calendar) on the market value of the Zakat-able assets after deducting therefrom specified liabilities.
• The compulsory transfer of ownership of a portion of the property of the giver, calculated at the rate of 2.5% as aforesaid, to a poor and needy Muslim who qualifies to receive Zakat according to the Shariah.
• It is an Ibada'h (worship) and not a tax, Obligatory on every Muslim who owns Nisab viz. 613.35 grams of silver, or 87.49 grams of gold or who owns one or more assets liable to Zakat, equal in value to 613.35 grams of silver or 87.49 grams of gold.

2.0. What is the meaning of Zakat? 
Zakat literally means "to be clear, to grow, to increase." It comes from the root letters za, kaf, ya, which has several meanings: to be clean, to pay the obligatory charity, to be pure, innocent, to be better in purity, and to praise oneself, to justify. It has been used in the Quran to mean all of these things. It can also be considered a form of sadaqah (charity), given to the poor. 

3.0 What is Nisab? 
The amount of wealth which makes one liable for Zakaat is called Nisab 

4.0 How do I know that I do have Nisab? 
If a person has gold equal to 20 mithqaals or 87.49 grams or silver 200 dirhaams or 613.35 grams  or cash equivalent or in combination all of the above then one has to give Zakat.  These amounts of gold and silver are taken from a Hadith of Prophet (PBUH).
 
Considering value of 613.35 gram silver is less than 87.49 grams of gold, scholars calculate the Nisab based on silver value (to benefit poor), hence if a person has approximately $270 dollars equivalent (June 30, 2009 silver value) for one lunar calendar, then the person should pay Zakat.
 

5.0 Who is entitled to receive Zakat?  

There are eight groups of people on whom Zakat should be spent, as mentioned in the Quran: "The alms are only for the Fuqara' (the poor), and Al-Masakin (the needy) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allah's Cause, and for the wayfarer (a traveler who is cut off from everything); a duty imposed by Allah. And Allah is All-Knower, All-Wise." [Al-Quran 9:60] 

*Fuqaraa: Those who own property in excess of basic necessities but below the value of Nisab.
*Masakeen: Persons of extreme poverty who possess no wealth whatsoever.

*Aamileen: (Zakat collector) Those persons who are appointed by an Islamic Head of State or Government to collect Zakat. It is not         necessary that this be a needy person.
*Muallafatul Quloob: Those poor and needy persons who are given Zakat with the intentions of solidifying their hearts because they          maybe recently converted to Islam or to bring them closer to Islam.
*Ar-Riqaab: slaves whose masters have agreed to set them free on a payment of a fixed amount. Zakat may be used to purchase their      freedom.
*Ibnus-Sabeel: A traveler, who, whilst wealthy at his residence, is stranded and in need of financial assistance.
*Al Ghaarimeen: A person whose debts exceeds his assets and his net assets (after deducting his liabilities) is below the Nisab limit.      To determine whether a person qualifies, his basic necessities of life (house, furniture, clothes, vehicle, etc.) will not be taken into         account. It is conditional that the debts were not created for any un-Islamic or sinful purpose.
*Fi Sabeelillah: Those who are away from home in the path of Allah. Those in Jihaad, those seeking knowledge or a stranded Haji may      be assist with Zakat if they are in need.

6.0 Who cannot be given Zakat?
Zakat cannot be given to parents, grandfather, etc., or to one's children and grandchildren. A husband and wife cannot give Zakat to each other.

Zakat contributions cannot be given to such institutions or organizations who do not give the rightful recipients (Masaarif) possession of Zakat, but instead use Zakat funds for construction, investment or salaries.

Zakat cannot be given to non-Muslims. The same ruling applies to Waajib Sadaqah (charity), i.e., Sadaqatul Fitr, Kaffarah, Ush'r and Naz'r. Naf'l Sadaqah could be given to non-Muslims.

If one cannot determine whether the recipient is needy or not, then it is better to make certain before giving him Zakat. If Zakat is given without inquiry and subsequently it is known that the recipient is wealthy the Zakat is not valid. It has to be given again.

Zakat will not be fulfilled by purchasing books for an institution, or land purchased for public utility and made Wak'f.

Zakat cannot be used for the Kaf'n of a deceased person who has no heirs, because at that time he/she cannot become the owner.

A dead person's debt cannot be paid from Zakat.

7.0 How should I Calculate Zakat?
The general principle is that one year must elapse over the Zakat-able property in order to render it liable to Zakat. This is subject to a qualification: where a person has Nisab of a particular class of Zakat-able property and during the course of the Zakat year acquires property of the same class from any source whatsoever, then the property so acquired is added to the existing Zakat-able property of the same class and Zakat is payable on the whole, or the remainder thereof, at the end of that Zakat year without calculating a separate Zakat year for each such separate acquisition. For example, a person has cash of $5,000 and during the course of the Zakat year receives a further sum of $10,000 by way of a gift. He must pay Zakat on the sum of $15,000 at the end of that Zakat year and a new year would not be calculated in respect of the subsequent acquisition of $5,000. 

 

Figure 1.1
In this graph, $3,000 is the amount of wealth owned in Ramadan. This amount exceeds nisab (calculated according to the nisab of silver.) During the year it decreases but does not go below nisab. In this case, Ramadan will be counted as the beginning of the relevant lunar year and Zakat will be due on the amount of wealth in possession during next Ramadan, which is $6,000.

Figure 1.2
In this graph, $3,000 is the amount of wealth owned in Ramadan. This amount exceeds nisab. During the year the amount decreases, then increases to $6,000. Then, wealth decreases again before increasing to $4,000. Despite these fluctuations, the amounts do not go below nisab. Hence, the relevant Zakat year will begin in Ramadan and Zakat will be due on the amount of wealth in next Ramadan, which is $4,000.

 

Figure 1.3
In this graph, $3,000 is the amount of wealth owned in Ramadan, which exceeds nisab. During the year it fluctuates - sometimes going below or above nisab. The individual’s relevant lunar year however only begins once the wealth goes above nisab in the month of Safar and remains above that for one complete year until next Safar. Hence, Zakat will be due in Safar on the complete amount, which is $6,000.

8.0 Where can I find the historical price of Gold to calculate my Zakat?

Kindly visit the following the link to find out daily and historical prices of Gold: http://www.research.gold.org/prices/

Courtesy: Hidaya Foundation