calculate zakat on business

calculate zakat on business

Brief Description:
This article discusses about Zakat on commercial goods. Readers will learn about business goods, the difference between personal assets and business assets, the conditions for zakat on business goods, the rules for debt-free business assets, the amount of zakat on business goods, how a businessman will determine zakat from business goods, the time value of his goods. Determine whether zakat is to be paid directly from the merchandise or from its value and how to pay zakat on the merchant’s haram goods?

Zakat on business goods:
Zakat is one of the pillars of Islam. The place of Zakat is after Salat. Islam has made trade and commerce lawful and usury has been forbidden. Zakat has to be collected at the prescribed rate on the assets acquired in business. Below is a detailed discussion about which commercial goods have to collect Zakat and which assets do not have to collect Zakat and its amount.

Introduction to Zakat:
Literally, Zakat means to be purified, dignified, increased, increased and blessed etc. In terminology: Zakat is the payment of a certain amount of obligatory wealth from the nisab amount of wealth to the determined rightful person of zakat with the intention of reward.

What is business product?
Assets which are imported from abroad or exported abroad or bought and sold in the local market for the purpose of business (profit) are called trade goods. All types of assets purchased for business purposes can be business assets. Such as land (immovable assets), houses, foodstuff, agricultural produce, quadrupeds, machinery, vehicles etc. These assets can be single owned or multiple owned.

Difference between Personal Assets and Business Assets:
Assets that a person prepares for his personal savings and personal use, not purchased for the purpose of making a business profit, will be considered as personal assets of the person and will not attract zakat. These assets will include his place of residence, house and business essentials and equipment. These items are purchased by the business or factory owner to store his business items. They are considered as machinery of production.

For example, business equipment, factory buildings, shop premises, vehicles, food items, premises not purchased for business purposes, business utensils, warehouses, showroom shelves, chairs, tables, furniture etc. will be considered as business goods. no These assets are fixed assets used in business, they will not be considered as Zakat assets. Therefore, Zakat will not be obligatory on it.

On the other hand, trading assets are those that are prepared for sale for business purposes. These will be identified as the main objective or according to the prevailing practice. That is, the trader or factory owner has purchased the product for business purposes at the time of purchase. For example, goods, furniture, machinery, vehicles, land etc. which are purchased for the purpose of business. Zakat will be obligatory if the conditions for zakat are fulfilled.

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Punishment for not paying Zakat

Evidence of Zakat being obligatory on business assets:
Zakat will be obligatory on the trader like the owner of other assets. Allah Ta’ala says: “O you who believe, spend of what is good, of what you have earned and of what We have produced for you from the earth.” [Surah al-Baqarah, verse: 267] In the explanation of “what you have achieved” in this verse, Mujahid. He said, “What you have earned by trading.” [1]

On the authority of Abu Jar, may Allah be pleased with him, the Messenger of Allah, may God bless him and grant him peace, said, “Zakat is obligatory on camels, Zakat is obligatory on goats, and Zakat is obligatory on wheat. It has come in some description, and zakat is obligatory on commercial goods.” [2]

On the authority of Samurah Ibn Jundub Radiyallahu ‘Anhu, he said: “The Messenger of Allah, may Allah bless him and grant him peace, used to order us to collect Zakat from the wealth prepared for business.” [3]

Ijma: Ijma has been reached among the Muslim Ummah regarding the obligation of zakat on commercial goods. No one disagreed on this. Conditions for Zakat being obligatory on commercial goods. To be a commercial product two conditions must be fulfilled:

First: the completion of trading in the product. That is, buying the product in cash or buying it by way of reimbursement or compensation or buying it against an immediate loan or outstanding debt, such as when a woman accepts a product in exchange for mahr or open divorce. But if the thing is inherited or gifted or returned because of a defect or if it is cultivated on someone’s owned land then Zakat is not obligatory on the merchandise.

Second: the intention of business and the intention of profit must be there; Although in some cases it may not be profitable. Therefore, if someone buys a house to live in, then he sells it for more than the purchase price. In such a case the house will not be treated as a trading product. Because the buyer did not initially purchase the house for the purpose of business and profit; Rather bought for living.

Similarly, if someone owns a car for his own use and makes a profit by selling it due to increase in value, it will not be treated as a trading product.

On the other hand, if a car dealer buys a car for business, and then uses a car of the car purchased for the purpose of sale himself, the car is no different from his business goods; Rather, it will also be considered as a commercial product and Zakat will be obligatory on it.

If someone buys goods for the purpose of business, even if there is no profit or loss, the asset will be considered as business asset and the provisions of Zakat on business assets will apply. However, if someone initially purchases something for business purposes and changes his intention before selling, his intention will change.

Because he has decided personal goods rather than business goods. So Zakat will be obligatory according to his intention. Similarly, if someone buys something for personal use and then intends to sell it for business, it will be considered as a business product.

Similarly the following transactions are also considered as business goods:
A. All types of products sold for profit. This would include individual business ventures or partnership ventures, sole proprietorships or joint ventures etc.

b. Intermediary transactions between two party traders. For example, brokers, importers and buyers etc.

c. Money exchange, various types of investor transactions.

Thirdly: The above conditions along with the conditions which make zakat on gold and silver obligatory must be found in business assets. And that is: Nisab must be fulfilled. It should be equal to the value of 85 grams of gold, the wealth should be over years old, surplus to self and family needs and debt free.

Rules for Exemption of Business Assets:
If the trader owes money to others and he is able to collect it when he wants, then the asset will collect zakat together with his cash or business assets; If it completes one year. Again, if the merchant has no assets other than the loan amount and the loan amount is Nisab amount and he is able to collect the said amount at any time, then Zakat must be collected from it as well.

On the other hand, if the money owed by the zakat giver is with the poor or the one who refuses the loan, who is not able to collect the money easily, then when he is able to collect the money, he will collect the zakat only for that year. You don’t have to pay Zakat of the previous year. Although many years passed.

On the other hand, if the businessman has a loan that is not related to his business, for example, if he has purchased immovable property, house, factory, land, etc. in installments, – which is often seen today – such a loan is called an investment loan. In some cases, these types of loan installments continue for many years.

Again, the amount of such debt is more than all the assets of the business of the businessman. If there is such a debt, should he pay zakat? What is his business relationship with this loan? In that regard, the scholars have agreed in accordance with the “First Zakat Conference 1984” (1404 Hijri) that, “If the installments of the loan do not have to be paid immediately, then such a loan does not prevent Zakat from being obligatory.” [4]

Amount of Zakat on Business Goods:
The amount of Zakat on business assets is the same as the amount of Zakat on gold and silver. If one has business assets amounting to Nisab of gold or silver and if one year has passed, Zakat will be obligatory as 2.5% on it at the end of the year. The trader can determine the amount of Zakat in terms of either gold or silver. [5]

How does the trader determine the zakat from the trade goods?
When the prescribed year of Zakat is completed by the trader, he shall determine the value of the goods which are considered as commercial goods according to the above rules. It will then combine this money with its cash (whether the said cash is invested in the business or not). To this amount will be added the amount of the loan that is likely to be readily available (as per the above rules).

Then, the trader will deduct (remove) the amount owed by one or more persons. After that, the remaining money will collect zakat at the rate of 2.5% after the Nisab amount and years have passed.

Imam Abu Ubaid. Maimun Ibn Mihran Rah. Narrated from, he said: “When Zakat becomes obligatory on you, look at the cash and merchandise that you have with you. Value the product at cash value. Combine that with the amount of debt you can afford to pay off. Then, if you have a debt, subtract it. Then pay Zakat on the remaining wealth.” [6]

A simple formula for obligatory zakat of a businessman:
Zakat = (market value of business goods + cash + recoverable debt – other’s debt owed to the trader) × amount of Zakat 2.5%. [7]

For example, someone has business goods clothes whose market price is Tk 500000 + cash amount 500000 + recoverable debt 20000, total = Tk 1200000 – debt of others to the trader Tk 400000 = Tk 800000 × Zakat amount at 2.5% = annual Zakat Tk 20000.

What time will the merchant determine the price of his goods?
The trader shall determine the current market price of the goods of his business. It does not matter whether the current market price is higher or lower than its purchase price. The current market price is defined as the selling price of the product in the market at the time Zakat becomes obligatory.

But if the market selling price is less than the cost of the product (purchase price and transportation cost) then the wholesale price of his product will be determined to relieve the zakat payer from loss; Whether the trader sells his product at wholesale price or not. This opinion was accepted by “Majma’ul Fiqh” of Makkah. For example, he bought the product for Rs. 100; But the retail price in the market has decreased to 70 taka, and the wholesale price is 65 taka, then he will calculate the zakat by taking the wholesale price as 65 taka. Zakat is not payable if the product is spoiled.

Zakat will be paid directly from the merchandise or from its value?
The basis of zakat on commercial goods is to collect zakat from the market price of the goods as discussed earlier. Therefore, it is better not to pay zakat directly from goods.

Because on the authority of Umar Ibn al-Khattab Radiyallahu ‘Anhu, he said to Himas Radiyallahu ‘Anhu: “Umar Radiyallahu ‘Anhu said to Himas, O Himas, you pay Zakat on your wealth. Himas was then. He said, I do not have (any) wealth. I sell quills (arrow pouches) and skins. Umar Radiyallahu ‘anhu said, “You determine its value and pay its Zakat.” [8]

Moreover, collecting zakat based on the value of goods will be more beneficial for the poor. Because he will be able to meet his various needs through it. However, it is permissible to collect zakat directly from goods. Because it sometimes eases the burden for the zakat payer and the merchant may not have cash. Moreover, direct merchandise can also benefit the Zakat recipient.

Provision of Zakat on certain other accumulated assets such as business assets:
Islam has made Zakat obligatory on various kinds of things. People not only do business for profit but accumulate money in various ways. These include prize bonds, retirement allowances, pensions, shares and rights etc. The provisions of Zakat on these goods are described below.

Zakat on Prize Bonds:
A bond is a document that obligates the issuer to pay the stated value to the bearer when he becomes entitled to it. Along with the value of the bond, additional profit is also paid according to the contract. It is pure usury and haram. As such, generally traded bonds are illegal; Because it is a loan with direct interest. Those who are involved in such transactions should repent to Allah. The ruling on zakat on bonds is the same as zakat on loans. If it is Nisab amount then Zakat will be obligatory.

Or other assets of the bondholder, such as money, business goods, etc. together amount to Nisab and one year has passed, then Zakat is obligatory on it and Zakat is payable at the rate of 2.5%. And if the bond is such that it cannot be broken before the specified time, in such a case the Zakat will not be waived, but when it can be broken, the payment of Zakat for all the previous years will be required.

Termination Allowances:
Salary Allowance: Salary-based welfare allowance given to an employee at the end of full term of service, which is paid by the government or any organization under specified conditions at present – as per the policy.

Retirement Allowance: A fixed sum of money paid by a government or organization to an employee covered by the Social Insurance Policy.

Pension Salary: The salary received by an employee of a government or private organization at the end of the full term of service on the basis of specific conditions as per the policy is called pension salary.

Their ruling is that as long as the employee is in service, he does not have to pay any zakat. Because in this nature the full ownership of the individual is not established. And the full ownership of wealth is a condition for zakat to be obligatory. Deed not having full ownership, employee cannot spend it at will; Rather, no proprietary right can vest in it until the tenure of employment is completed.

When it is decided to specify the said salaries and allowances and pay them to the employee and they are paid to him all at once or in different periods, full ownership will be established and the amount acquired, subject to the fulfillment of the Nisab, will have to be paid Zakat.

Zakat on shares:
Shares are part of the equity of the capital of the holding company in which the company receives the shares.

Example: A share holding company has a capital of three million dollars. When starting a company, the capital is divided into ten thousand shares, each share is worth (300) dollars. Each of these parts is a share. And the one who owns the shares is considered to be a partner in the ownership of the company according to his shares.

The ruling on transactions in share-based companies is that such transactions are valid, provided the activities of the company are not haraam-based or free from usurious transactions. If the amount of money of such a company is the Nisab amount of Zakat, then Zakat is obligatory. If the company itself pays Zakat, then the liability of the shareholder will be fulfilled. And if the company does not pay Zakat, then the market value of the shares must be calculated. If it is a Nisab amount and exceeds one year, then Zakat is obligatory on it. That is, 2.5% zakat should be paid like commercial goods. Because it is considered as a business asset.

For example: A person has 1000 shares. The price per share is 10 dollars on the day of zakat withdrawal. As such, the total value of his shares will be 10000 dollars. It is more than nisab amount of wealth. Therefore, if one year has passed, its Zakat will be required.

Zakat on money given to the owner as security for a tenant of a house or shop: The provision of Zakat on money given to the owner as security for a tenant of a house or shop etc. is that the tenant does not have to pay Zakat on such money. Because full ownership is not established in it, which is a condition for Zakat to be obligatory. However, when this money is returned, if it fulfills the Nisab amount and other conditions of Zakat, it does not have to pay Zakat of the previous year; Rather, only the current year’s zakat must be collected.

Ownership Zakat:
Zakat is to be paid on rights-centered money. A person’s right to something immovable, may be a person’s intellectual property, such as copyright, invention or any business activity undertaken by a business person for the purpose of gathering customers, such as a trade name, trade mark, etc. According to conventional norms, ownership has a monetary value, which is also effective in the eyes of Islamic Shari’ah.

Therefore, it is permissible to use it according to the provisions of Islamic Shari’ah. And this right is reserved, it is not permissible for anyone to violate it. However, there is no zakat on original authorship or invention; Because the condition of zakat is missing in it, but if the money obtained by the right of ownership is confiscated, then it will be obligatory to pay zakat as if it is a beneficial asset, i.e. 2.5% rate of zakat must be paid.

Zakat on employee’s salary:
Zakat is to be paid on the money that the worker receives in return for work, just like gold and silver. That is, when the amount of Nisab is reached and one year has passed, Zakat will be obligatory on it. And the amount of Zakat is 2.5%.

Zakat on the haram wealth of the trader:
Assets that are acquired or benefited from are prohibited by the Shari’ah, such as money or interest earned from the sale of alcohol or stolen property. Wealth that is originally haram – such as wealth gained from trade in alcohol or pigs, etc. – does not have zakat. Similarly, wealth that is not originally haram, but has become haram for some other reason, such as stolen wealth, does not have zakat; This is because full ownership of the individual is not established in such wealth, which is a condition for zakat being obligatory.

What should be done in the case of haram goods is that the person possessing this wealth will never own it, no matter how much time passes, due to the problem of earning. In this case the person will be required to return the property to the original owner or his heirs (if known). And if the person despairs of knowing the original owner or his successor, then the owner should spend it on charity as charity to get rid of the haram property.

If the wealth is acquired as wages of haram work then the acquirer shall spend it on charitable works. It shall not be returned to him from whom it was taken; Because he will spend it again in sin. If the person from whom haraam goods were taken is adamant in not abandoning the illegal transactions that caused his wealth to become haraam, such as the money of Sudi Laneden, then his wealth will not be returned to him, rather it will be used for charitable purposes.

If the person who seized the haram property is unable to return the original haram property, then he shall return the same amount of the property or its value to the owner in its place, if he can find him, otherwise the equal amount of the property or its value shall be spent on charity on behalf of the original owner. . [9]

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