Zakat definition

Zakat is an obligatory form of almsgiving in Islam and one of the religion's core duties. In financial terms it is a yearly contribution owed on qualifying wealth, once that wealth clears a set minimum.

Zakat falls due when a person's eligible wealth stays above a minimum threshold, known as the nisab, for a full lunar year. Eligible wealth can include cash, savings, business assets, investments, gold, and silver. The standard rate on most such wealth is 2.5%.

Zakat differs from sadaqah, the other main form of Islamic charity. Zakat is compulsory, fixed in rate, and owed only above the nisab threshold, and it goes to defined categories of recipients such as the poor and those in debt. Sadaqah is voluntary, has no set amount or threshold, and can be given to anyone at any time.

Zakat Example

An individual holds USD 20,000 in eligible savings after essential expenses and obligations, above the nisab threshold. At the standard 2.5% rate, the zakat due is:

USD 20,000 √ó 2.5% = USD 500

The individual pays USD 500 in zakat for the year, with the remaining USD 19,500 left untouched by the obligation.