Islamic Finance: Nisab and the calculation of Zakat

As Ramadan is drawing to an end, many readers would like to calculate zakat and distribute it before the end of this holy month. For the benefit of readers I provide below the Nisab questionnaire as well as a table illustrating calculation of Zakat.

Nisab Questionnaire

Please answer the following questions honestly to ascertain whether or not you are liable to pay Zakat:
a) Did you carry hard cash (any currency) of the equivalent of $1,020 or more throughout the last lunar year?

b) Did your bank account(s) or any commercial paper have a balance of $1,020 or above over the last lunar year?

c) Did your provident fund account hold a balance of $1,020 or more for over a year?

d) Have you given an amount the equivalent of $1,020 or more as a loan to someone which has remained unpaid for over a lunar year?

e) Do you own pure gold or gold jewellery (net of making charges and stones) or pure silver/jewellery worth more than $1,020?

f) Have you held shares of a public joint stock company for over a lunar year and the average value of the portfolio remained a minimum of $1,020?

g) Do you solely own a business with a minimum inventory cost of $1,020?

h) Do you own milk-producing animals or animals reared for their meat with an aggregate value of $1,020 or more?

i) Do you own any item which you bought for the purpose of investment or resale whose value is more than $1,020?

j) Do you own any investment property (e.g. shop or share in a house, etc.) anywhere in the world with a net annual rental income of $1,020 or more?

k) Have you recently harvested any crop whose minimum value is equivalent to 653 kg of wheat at the market price prevalent at the place of harvest?

l) Do you own (solely or partly) any mining operation?

If your answer to any one or more of the above questions is YES, then proceed to reply to the last question below.

If you have failed to score a single yes, you may not be liable to pay Zakat. However, please read on to know for sure.

m) Are you indebted for an amount more than what you totally own, excluding the mortgage on the house occupied by you or a personal loan against your salary, which is regularly being serviced?

If your answer to (m) is YES, you are not liable to pay any Zakat. However, if your reply is negative, you are a Nisab holder and hence liable to pay Zakat.

If the value of (m) is lower than the sum of the values from (a) to (j), you are still liable to pay Zakat but only on the residual amount if it is equal to or exceeds $1,020.

Other Points

Please note that the current market value for 85 grams of 999 quality pure gold (i.e. Nisab) is about $1,020.

Please remember that Zakat will still be payable if the individual value of all items under (a) to (j) is less than $1,020 but collectively exceeds $1,020. We will examine this aspect below while calculating Zakat.

To arrive at an average value of shares portfolio (f), you may simply combine the lower value a year ago with the present lower value and average it out.

If the ownership of the business is in partnership (g), it is preferable to calculate Zakat jointly, i.e. on the business itself, rather than individually by each partner.

For investment property (j), please calculate its net annual rental value after deducting maintenance charges from the gross annual rental.

As regards (k), the Zakat rate on cultivated land is five per cent whereas it is 10 per cent on non-cultivated land, such as on the produce from an orchard.

For minerals (l), the Zakat is 20 per cent on the commercial value of elements explored during the last one lunar year, irrespective of the holding period and Nisab.

I hope with the help of the above explanation, it may have become easier for a reader to determine whether or not he/she is the Nisab holder or in other words, whether or not he/she is liable to pay Zakat.

Zakat calculation

Provided in the table above is the asset holding of Khan, who represents a typical upper middle class household residing in the Gulf.

The table can be used to calculate Khan's Zakat liability.

The writer is the head of risk management at Dubai Islamic Bank.