Zakat and the Modern Financial System
Its Importance in Life
Zakat and Modern Finance are essential parts of a Muslim’s financial life today. I still remember the day when I first seriously tried to calculate my own Zakat. I had a copy in front of me, the bank app was open on my mobile, I was looking at the gold rate on one side, and there was a slight confusion in my heart. In the past, the matter seemed simple. People had cash, livestock, crops or gold and silver. Today we have savings accounts, mutual funds, crypto wallets, online earnings, business shares and various digital accounts. I was wondering how Zakat fits into such a modern financial system.
Then when I talked to scholars, read books and tried to understand, a beautiful truth came to light. Zakat does not become outdated with time. The form of money may change, but the principle of Zakat always remains alive and strong.
What is the real purpose of Zakat?
Zakat is not just charity. It is an obligatory act of worship for every Muslim who has reached the Nisab. It is one of the fundamental pillars of Islam and is mentioned repeatedly in the Holy Quran along with prayer. In the Holy Quran, Allah Almighty says to establish prayer and pay Zakat. This shows that along with spiritual purity, financial purity is also necessary.
The word Zakat means to purify and increase. Earlier, I thought that giving Zakat would reduce my money. But when I understood its real meaning, I realized that it actually purifies the wealth and blesses it.
The basic principle is simple. If you have wealth that is more than the Nisab and one lunar year has passed on it, you should give two and a half percent of it as Zakat. The principle is simple, but in today’s financial system, its calculation requires a little attention.
What are the things on which Zakat is paid today?
In the past, wealth was mostly in visible form. Gold, silver, animals or land produce. Today, wealth is in many forms that are not even visible, only in the form of numbers on the screen.
When I did my calculations, I had to consider these things:
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Cash in the house
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Bank deposits
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Gold jewelry
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Investments and shares
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Online earnings that are still in the account
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Business receipts
Today, the sources of wealth have increased, but the principle is the same. Zakat is due on any property that is in your possession, usable and intended for trade or savings.
Zakat on salary and bank balance
Many people believe that Zakat is due on it as soon as you receive your salary. This is not the case. Zakat is due on the property that is left over and exceeds the Nisab and a year has passed on it.
I have set a date for myself. Every year on this date, I calculate all my accounts, cash and gold. Whatever is present on that day and is more than the Nisab, I take out two and a half percent of it. This method makes the calculation easier and there is no mental stress.
Importance of gold and silver
Gold has special importance in our society. For many women, gold is a safe deposit box. I have seen for myself that this gold becomes a support in difficult times.
If the amount of gold reaches the Nisab, then it is necessary to pay two and a half percent Zakat based on its current market value. Nowadays, it is not difficult to find out the rate of gold. The latest price is known on the mobile in a few moments. This eliminates the need for guessing.
Shares and investments
This is the part where most people get confused.
If you hold shares with the intention of buying and selling, then Zakat will be on their current market value. If you invest for the long term and take profits, the simple way is to withdraw 2.5 percent of the current value.
When I first calculated my investment, I thought a lot. In the end, I took the simple route. I paid 2.5 percent of the market value on the date of Zakat. My heart felt at ease.
Business and online work
Nowadays, many people do online business. Freelancing, e commerce, digital services, etc.
When withdrawing Zakat for a business, these things are included:
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Amount in the business account
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Items that are kept for sale
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Amount that is due and expected to be received
However, there is no Zakat on items used in the business such as laptops, furniture or cars because they are not for sale.
When I calculated my small business, I separated the items used and the items sold separately. This made the matter very clear.
Also Read: Who Wrote the Quran? Uncover the Truth Behind Its Revelation
Cryptocurrency and Digital Assets
This is an important question of the modern era. Cryptocurrency did not exist in the past, but its nature is similar to trade and currency. If you have crypto, it reaches the Nisab and after a year passes, Zakat will be paid according to its current value.
I also held crypto for some time. The prices used to change every day and I used to get worried. Then I realized that there is no need for daily calculations. It is enough to calculate by just looking at the price on the Zakat date.
Loans and the modern banking system
In today’s era, taking loans is common. Home loans, car loans, credit cards, etc.
If you have a loan that needs to be paid immediately, you can deduct it from your total wealth. In long term loans, usually only the installment for this year is deducted.
This method is based on justice and is also in accordance with the purpose of Zakat.
Retirement Fund and Pension
If the retirement fund is fully owned by you and you can withdraw it, then there will be an annual Zakat on it. If access to the money is possible only after retirement, then some scholars allow that the Zakat of previous years should be paid at the time of withdrawal.
This matter may vary according to the country and system, so it is better to seek authoritative guidance.
Impact of Zakat on Society
In today’s world, the difference between rich and poor is clear. If every educated Muslim pays Zakat honestly, then society can change.
The Holy Quran clearly mentions the beneficiaries of Zakat. The poor, the needy, the debtors and other deserving individuals. Zakat circulates wealth and reaches the needy.
The modern financial system concentrates wealth in a few hands. Zakat balances it.
Common mistakes
Most people make these mistakes:
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Forgetting the amount in the online wallet
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Not including business receivables
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Calculating on the old price of gold
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Only paying Zakat on profits, not including the original amount
That is why it is very beneficial to have a fixed date in the year.
The importance of Zakat in life
Zakat made me financially organized. I regularly check my assets. I try to eliminate unnecessary debt. I focus on saving.
Zakat does not only purify wealth, it also softens the heart of a person. It reminds me that wealth is a trust.
FAQs
What role does zakat play in Islamic finance?
Zakat plays a central role in Islamic finance by ensuring that wealth circulates fairly in society. It promotes social justice, reduces inequality, and purifies wealth. In Islamic finance, Zakat is a mandatory obligation that encourages ethical financial behavior and discourages wealth hoarding.
What is the zakat system?
The Zakat system is a structured method in Islam where eligible Muslims must give 2.5 percent of their qualifying wealth each year to specific categories of beneficiaries mentioned in the Qur’an. It is based on the Nisab threshold and the completion of one lunar year on wealth.
What is zakat in financial statements?
In financial statements, Zakat is recorded as a liability if it is due but not yet paid. For individuals or Islamic financial institutions, it may appear as a payable amount deducted from net assets. Some Islamic companies also disclose Zakat calculations in their annual reports for transparency.
What is the role of zakat in economic development?
Zakat supports economic development by redistributing wealth to the poor, helping reduce poverty, increasing purchasing power, and promoting social stability. It stimulates economic activity by ensuring money flows through different levels of society instead of remaining concentrated in a few hands.
What is the Zakat in Islam?
Zakat in Islam is a mandatory act of charity that eligible Muslims must give once a year. It is one of the five pillars of Islam and requires giving 2.5 percent of qualifying wealth to specific categories of needy people mentioned in the Qur’an.
How much Zakat on 1000 rupees?
If 1000 rupees is part of your total savings that has reached the Nisab and one lunar year has passed, then 2.5 percent is due. On 1000 rupees, Zakat would be 25 rupees.
What is Zakat and how to pay it?
Zakat is an obligatory charity given by Muslims on savings, gold, business assets, and other qualifying wealth after one year. To pay it, calculate 2.5 percent of your total eligible assets and give it directly to eligible poor or through trusted charitable organizations.
Why is Zakat important?
Zakat is important because it purifies wealth, reduces poverty, promotes social justice, and strengthens community support. It reminds Muslims that wealth is a trust from Allah and must be shared responsibly.
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