Zakat or almsgiving is one of the five pillars of Islam, along with prayer, fasting, pilgrimage to Mecca, and the declaration that “there is no God but God.” Zakat is obligatory for all Muslims who meet certain criteria. For example, a Muslim must give 2.5% (one-fortieth) of their annual savings to the poor and needy at least once a year.
There are various opinions among Muslim scholars regarding those who can receive Zakat funds from Muslims. According to one view, only those individuals can take Zakat who belong to the “people of the book,” i.e., Jews and Christians (Quran 9:60). Accordingly, this would exclude all non-Abrahamic faiths such as Hindus, Buddhists, etc. Since many people belong to these other faiths in many parts of North America and Europe, where Muslims reside in significant numbers, this interpretation does not seem appropriate for these regions. The different opinion is that any individual who needs assistance can receive Zakat. This would include people of all faiths, including non-believers who need help.
Please visit: https://www.sktwelfare.org/ramadan/pay-your-zakat/
The requirement of an annual donation of 2.5% has given rise to the question as to whether it is permissible for Muslims to sell their homes and donate the proceeds from the sale to charity since the zakatable assets include any “profit or benefit” that accrues from one’s savings or commercial earnings (al-Nisaburi, al-Majmu’). It would seem that this is not allowed because, under Islamic law, a person must retain ownership over objects being sold unless they can give away their properties with the complete relinquishment of all rights. However, if a Muslim maintains control over the donated home by renting it out with complete relinquishment of all rights to the rent, they are permitted to sell the house and donate the proceeds.
The consensus among Muslim scholars is that Zakat funds should be distributed by how an individual earns his income. Thus if one’s source of revenue comes from wages, it is obligatory upon them to spend Zakat money on oneself first before giving it away to charity. However, if one has a business or an employment contract that provides annual payments (e.g., dividends), such income would fall under the category of savings and thus must be paid as Zakat to eligible recipients. On the other hand, individuals who receive interest-based payments do not have any obligations to pay Zakat on their earnings.
In the Quran, Allah says: “Take alms from their wealth so that you may purify and sanctify them” (Quran 9:103). Accordingly, Muslims must pay a 2.5% tax on savings derived from business or employment income to help the poor and needy in the community. Scholars have argued about which payment should be subject to Zakat. Some scholars decide what percentage should be given by referring to historical sources, while others use contemporary economic conditions. In both cases, Muslims must pay Zakat annually for all items they own beyond a certain minimum amount of savings. However, Muslim scholars have no consensus on whether one can sell their home if it is worth more than the nisab and donate the money for Zakat.
It involves the systematic giving of 2.5% of one’s savings and wealth to eligible for Zakat. Although Zakat is considered a charitable obligation, it differs from other types, such as voluntary charity (“sadaqah”), as it constitutes only 2.5% of one’s wealth instead of being 10% or more; hence, those who give their obligatory Zakat do not have to pay any additional Islamic taxes on their income or assets.
Some Muslim scholars have pointed out that Zakat is a right, not a charity or gift. It must be given to the eligible receivers of Zakat before the needs and desires of any individual begin to be fulfilled since one may need assistance from others at some time in the future. Asking for help from those who do not qualify for Zakat is prohibited. If insufficient funds are available after giving away 2.5% of savings to eligible recipients, all expenditures, including living expenses, become obligatory first before adding anything to the Zakat fund. In this case, all charitable contributions must be reduced until there is enough money in one’s possession to give 2.5% of savings as Zakat (Abu Zahra, al-Madkhal).