Calculating Zakah on Holdings, etc.
Fatwa No: 84569

  • Fatwa Date:23-7-2002 - Jumaadaa Al-Oula 14, 1423
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Question

I have some money in shares, some in accounts in the bank, and some in land. As far as I understand, I am to find out the value of these holdings on a (lunar) yearly basis, subtract the Nisaab, and pay 2.5 percent of the remaining amount in Zakaat. Am I correct in thinking this? Also, I receive a small monthly allowance from my parents to cover my personal expenses. How do I figure out the Zakaat on this? Am I correct in thinking that if I spend all of it during the year, that I need not pay Zakaat on it? Thank you and I am looking forward to hearing from you soon.

Answer

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

 

If a landed property itself is intended for trade, then it is subject to Zakat as articles of merchandise. If it is rented, then you have to pay the Zakat only on its revenues when they (alone or when combined with other money or articles of trade) constitute a Nisaab (the minimum amount liable for Zakat) which equals 85 grams of gold, and it should be possessed for one complete lunar year.

As for shares, they are of two kinds concerning being subject to Zakat:

1) If such shares constitute a portion in some company (i.e. fixed assets like building,…) and are intended for their revenues, not for trading in themselves, then they follow the ruling explained above. But, if such shares are a form of trade like goods, building materials, etc. …, then you have to pay the Zakat on the capital and its revenues as long as they reach the Nisab and a whole lunar year elapses on them.

2) If the owner of shares buys them as a form and means of trade, then they follow the ruling of articles of merchandise, i.e. one has to pay the Zakat on the capital and revenues, whether they are fixed assets or articles. Here, such business must be evaluated according to the present price on the market and one has to pay the Zakat (profits included) as long as the value reaches the Nisab and a whole lunar year elapses on it.

Here, we find it essential to remind you of the fact that the above rulings concern companies that run lawful activities and manage lawful shares; otherwise, it is forbidden to deal with companies that deal in Riba (usury and interest) and other prohibited things such as wine… etc.

Furthermore, only the capital of companies that deal in Riba is subject to Zakat, i.e. not profits since they are illegal, and one has to get rid of such forbidden revenue by spending it on general public welfare.

As for cash deposited in a bank, both the capital and its profits are subject to Zakat when the whole sum of money reaches the Nisab and a whole lunar year elapses on it, provided that the bank is an Islamic bank.

But, if the bank is usurious, then only the capital will be subject to Zakat, while the interest is to be spent on general public welfare of the Muslims.

As for the monthly allowance given by your parents, it is not subject to Zakat unless it (or some) remains in your possession and such a remainder (whether or not combined with other money) constitutes a Nisab and is owned for a complete lunar year, then, in this case, you have to pay 2.5 percent as Zakat.

Allah knows best.

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