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Step 1: Calculate the Nisab
Nisab is equal to the value of 80 Gram of pure gold priced at prevailing market rate at the time of calculating. You need to use this in step number 7
Step 2: Define your Zakat Cycle Dates
As Zakat is an annual financial duty, starting and ending dates of your Zakat cycle shall be clearly defined.
- The starting date is set once your Zakat pool (see step 6) excesses the Nisab limit (step 1)
- The ending date (or effective date) is set as a year after the starting date.
Example: if one gram of pure gold costs US$ 30, then the starting date is when your Zakat pool equals the Nisab (80 Gram X US$30 = US$ 2400) let’s assume it is 21-3-2010, then your ending date (effective date) is 20-30-2011
Step 3: Update Your Financial Status
Prepare an updated information of your wealth items priced as per the market (actual) value on the effective date
Step 4: Identify Your Zakat Assets
Zakat assets are what you actually own on the Zakat effective date. You have to sum up all wealth items you own. Some examples are:
- Cash: any type of cash ready cash, current accounts, saving accounts, fixed deposits as stated in your bank statement.
- Securities: shares, stocks, mutual fund units, bonds and sukuk valuated at the closing price in the stock market.
- Your current account in a company which you are a partner in
- Saving plans: the surrender value of your saving plans
- Gold investments: as per the market value
If there is any amount of money which proposed to be received during the concerned Zakat cycle but not yet happened, then you have to add the expected value to the Zakat assets.
Note: Your personal belongings such as a home or a car are not considered as Zakat assets.
Step 5: Identify Your Zakat Liabilities
Zakat liabilities are your financial obligations. Any obligation which you had satisfied during the concerned cycle requires no more consideration. Nevertheless, if there is any amount of money that was proposed to be paid during the concerned Zakat cycle but you did not do yet, then you have to add the expected value to your Zakat liabilities.
If you had obtained a personal loan of any type (car, home, cash) then you have to consider the installments that you have to pay during the following Zakat cycle.
Note: You have nothing to do with entire outstanding debt.
Step 6: Calculate the Zakat Pool
Zakat pool = Zakat assets (step 4) minus Zakat liabilities (step 5)
Step 7: Compare to Nisab
If the result of the Zakat pool (step 6) exceeds Nisab limit (step 1) then you have to dispose Zakat as shown in step 8.
Step 8: Calculate Your Zakat Duty
Zakat dues = Zakat pool (step 7) X 2.557% The result is your Zakat that you have to dispose.
Zakat ratio is 2.5% if the Zakat cycle is calculated using the Hagirae calendar while it is 2.557% if using the Gregorian calendar.
- Your personal home and car are not considered, as shown in step 4.
- The value of a car or a home that you rent out to others is also not considered. However, the income generated by any investment is considered as shown in step 4.
- Any income generated from non shariah compliant source, i.e. interest of bonds, is not considered. However, the value of any conventional financial obligation is considered as shown in step 5.
- Your Zakat calculation will not be affected if you pool goes below the Nisab limit during the concerned Zakat cycle as long as the pool on the effective date meets the requirements shown in step 7.