Know How to Calculate Zakat in Saudi Arabia

zakat

Zakat can be referred to as an Islamic finance system in which every individual belonging to the Muslim community has to donate a calculated portion of their wealth for the welfare of society. In other words, Zakat is an economic form of worshipping to purify yearly income and help the poor by providing them with essentials. The donation in the form of Zakat can be calculated as 2.5% of the surplus wealth or savings held by a person. However, house payments, utility bills or other essentials are not added to the Zakat calculator. Read below to find other significant criteria’s that are used in Zakat Calculation.

How does Zakat work?

Zakat is also called as one of the five significant pillars of the Islamic community. Others include fasting during Ramadan, declaration of faith and Hajj pilgrimage. Zakat is a compulsory procedure for Muslims who earn above the essentials to distribute a certain amount to the needy. Though, Zakat must not be confused with Sadaqah which is a voluntary act to give charity out of generosity or kindness. Once you indulge in Saudi or GCC state’s establishments, you become liable to make a Zakat payment which is calculated according to the Kingdom’s law and regulations. Zakat is calculated on shares held of Saudi partners working in mixed companies too.

How is Nisab calculated?

Nisab can be defined as a minimum amount held by a Muslim before being obligated to pay Zakat. Nisab was set by none other than Prophet Muhammad (SAW) at a rate equal to 87.48 grams of gold and 612.36 grams of silver.

Since we do not trade in gold and silver anymore, the amount is calculated based on the currency held amounting to the rate fixed by the Prophet Muhammad in the Kingdom. This can be done by checking the current rates of gold and silver in the market. In short, two core values that help in calculating Nisab are gold and silver.

What does Hawl mean?

While explaining Zakat, you must have come across the word ‘Hawl’ which means one lunar year according to the Muslim calendar. One hawl or a lunar year is equal to 354 days on earth. To make payment for Zakat, you have to calculate according to income earned during one hawl that decides further whether or not you are eligible to pay Zakat.

How to calculate Zakat in a simple way?

Just like other taxes on wealth, Zakat calculation is pretty simple and can be calculated easily by following the below-mentioned ways:

  • Totalling every source of income

To follow this method, you need to sum up all the assets you owned during the last hawl or the lunar year. The assets include:

Debts owned+ Gold and Silver+ Cash+ Shares and Stocks+ Property+ Saving fund and Investment+ Business Assets = Total Income.

While calculating all the above-mentioned fields, there are a few considerations and regulations that require to be ascertained as per Zakat Guide Book.

  • Totalling your immediate living expenses and needs

In this method, you need to calculate Zakat by adding:

Living and Personal expenses+ Business expenses+ Debts you owe= Living Expenses

While calculating all the above-mentioned fields, there are a few considerations and regulations that require to be ascertained as per Zakat Guide Book.

  • Calculation of total Zakatable amount

Total income- Living Expense= Zakatable amount

  • Ensure if the above amount is the threshold for Nisab

You can calculate Nisab value according to gold or silver rates to ascertain the cash value of the Nisab threshold. If the Zakatable amount exceeds the Nisab threshold, you can move forward to the next step.

Calculation of payable Zakat amount

To find payable Zakat amount, use the below-mentioned formula:

Zakatable wealth* 2.5%= Zakat payable for a lunar year

To make it easier, you can use the online Zakat Calculator available where you need to feed in the number or figures owned by you. The online calculators usually calculate the Zakatable amount in cash, gold and silver simultaneously.

Verify whether or not you need to calculate a part of your wealth for Zakat calculation

Like ordinary tax calculation, we all want to be careful while calculating Zakat amount, isn’t it? We know that calculating Zakat can be complicated at times or a bit comprehensive since our capabilities lie on our ability to be generous when looked at from the scholarly side.

Of course, Zakat does not apply to Eid money or children allowances but can be applied to minors having inheritances or trust funds. The technicalities and details are beyond the scope of a single blog post which means, you must discuss with experts for appropriate Zakat calculation.

Take the help of Pulse Infotech Co. Zakat approved E-Invoicing service providers in Saudi Arabia.

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