What Is Zakat? Definition, Standing, and Conditions
Definition and Standing
"Zakat expenditures are only for the poor and for the needy and for those employed to collect [zakat] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler" (At-Tawbah 9:60). Zakat is the third pillar of Islam, paired with prayer throughout the Qur'an, and is an obligatory due on wealth owed to the poor and the rest of the eight categories of recipients. Contemporary scholarship notes that one purpose of the Shariah is that wealth not remain concentrated among the rich (Al-Hashr 59:7).
Conditions for Zakat to Be Due
Zakat becomes due under five conditions: being Muslim; full and free ownership of the wealth; reaching the nisab threshold; a full lunar year passing (hawl, about 354 days), except for crops and produce, which are zakatable on the day of harvest; and the wealth exceeding one's basic needs. Freedom, sanity, and legal majority are conditions according to the majority of jurists, though scholars differ: Abu Hanifah required sanity and majority, while al-Shafi'i and Malik held that zakat is due on the wealth of a minor or someone of unsound mind, paid on their behalf by their guardian.
The Rate: Why 2.5%?
The unifying zakat rate is 2.5%, i.e. a quarter of a tenth (1/40 of the wealth), based on the hadith: "On silver (al-riqah), a quarter of a tenth," and "if you have two hundred dirhams and a year has passed over them, five dirhams are due." This rate is built on the lunar year. Some contemporary scholars have permitted calculating zakat on the solar (Gregorian) year instead, for ease of aligning with the American tax year, raising the rate to about 2.577% (= 2.5% × 365 ÷ 354) to compensate for the eleven extra days in the solar year. The original and safer practice remains the lunar year, fixing one annual zakat date (such as the first of Ramadan).
The Hawl and Fluctuating Wealth
Jurists differ on how to treat the hawl for wealth that rises and falls in value during the year. The Hanafis are satisfied if the nisab is met at the two ends of the year (its start and its end); a temporary dip during the year does not break the hawl as long as the nisab was present at the beginning and the end. This is the easiest position to apply in practice. The majority (Maliki, Shafi'i, and Hanbali) require the nisab to be maintained throughout the entire year; if the wealth drops below the nisab at any point, the hawl is broken and must restart once the nisab is reached again. It is agreed upon that profits and increases arising from the original wealth (such as growth on invested capital, or a saved salary) are added to the principal and zakatable on its hawl, without a separate hawl of their own; for this reason, it is recommended to fix a single annual zakat date on which everything one owns that day is calculated.