Nisab and Zakah
In order to distinguish the needy from the well off, a limit known as nisab was established by the Prophet (Salla Allahu Alayhi wa Sallam). According to Mahmoud Abu-Saud, the basic definition of nisab is the “amount which is sufficient to sustain the minimum average family for one year,” an amount which is roughly equal to the definition of the “poverty line” in the United States. Essential needs are defined as things which one could not live without: food, clothing, shelter, transportation, health care, education, and the tools of one’s profession. If your net worth surpasses the level of nisab, the excess is subject to zakah.
Who Receives Zakah?
Zakah funds should be distributed according to
the categories of need outlined in the Qur’an
(at-Tawba 9:60). These include:
- those who are poor
- those who are needy or destitute
- those employed to administer zakah
- those whose hearts are being reconciled
- those held captive
- those in debt
- those who are stranded
- in the cause of God (fi sabilillah)
The last category, fi sabilillah, is broad enough to allow zakah funds to be used for the general welfare of the community. Under this category, considering the fact that our mosques and community centers promote Islam and in many ways act as dawah centers, a portion of one’s zakah may be paid to these centers. Zakah funds may also be used for education of the people and for promotion of Islam and the ummah.
When is Zakah to Be Paid?
Zakah is incumbent upon all Muslims and
is paid according to the lunar calendar. No
zakah is due on wealth before one year from
the date of acquisition, the most well known
hadith being: "No zakah is due on wealth till
one (full) year passes." Zakah can be paid any
time of the year. Many prefer to pay during the
holy months of Ramadan or Rajab while others
prefer Muharram, the first month of the Hijri year. Assuming nisab has been met, and the
investment is held for a full lunar year, most
jurists agree that zakah can be paid in advance,
during the month of Ramadan, or when there is
a special need because of a calamity, sickness,
or fi sabilillah.
An estimated monthly payment of zakah is encouraged. This not only helps to mitigate the obligation by spreading out the payments, but it also fulfills the purpose of zakah sooner rather than later. The final calculation and reconciliation of payments, however, can be done at the end of each lunar year.
The legal provision that a complete lunar
year should elapse starting from when nisab was exceeded means that a zakah year may run at different times for different investors.
If an investor chooses the end of the fiscal
or calendar year (to coincide with payment
of other obligations like federal and state
income taxes), one must keep in mind that
the difference between the Gregorian and
the lunar year is 11 days, the lunar year being
shorter. Zakah is calculated on the basis of the
lunar year not the Gregorian.
Continue to Investing and Zakah 
