This Ramadan, as millions of Muslims fast and prepare to fulfil another one of the five pillars of Islam: Zakat, skyrocketing gold prices are going to be an important factor in calculations and payments of the yearly charity.
The price of gold has doubled since last Ramadan. It was about $2,900 per ounce during the last Ramadan, and now the price has increased to more than $5100 today. We will explain how this will affect the Zakat in two major ways this year, but before that, it is important to know what Zakat means and how it works.
Zakat:
This charity has been made compulsory for Muslims, with a certain amount of wealth, and can be paid at any time throughout the year. Most of the people prefer to pay this “tax”, aimed at supporting the needy and promoting economic equality, during Ramadan for the higher spiritual rewards the month offers.
It is mandatory for Muslims who meet the financial threshold or nisab. It is 2.5% or one-fourtieth of one's wealth.
Nisab:
It is the minimum threshold of wealth for a Muslim to possess, which makes him eligible to pay zakat. Nisab has two standards: gold and silver.
A person (adult) who possesses 87.4 gms of gold (around 3 troy ounces) or wealth equivalent to its value, or 612 gms of silver or wealth equivalent to its value. Obviously, the nisab keeps changing every year, with the changing market values of gold and silver.
Last year, the nisab was $8,000 and this year it has increased to $15,000. This means a person was eligible to pay zakat last year if his overall wealth exceeded $8000, but this year a person's wealth should exceed $15000 to be eligible to pay zakat.
There are, however, two categories of assets (wealth), and it is essential to know what is zakatable and what is not.
Zakat is mandatory for assets and savings, kept to profit from, including savings (cash or otherwise), gold and silver, business assets and profits, investments, agricultural produce, livestock, and more.
One does not need to pay Zakat for assets in use for daily life, including the house we live in, our car, and essential property like clothing, furniture and appliances.
So, how will the gold prices affect zakat?
The prices of gold have shown immense growth over the last few years, particularly in the last year. And it will have direct effects on zakat this year.
One, more people will be exempt from paying zakat this year, because the nisab has increased significantly, as discussed earlier.
Two, the amount of zakat will substantially increase as well because the value of gold and silver holdings has increased considerably. It will add to the overall charity paid.
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This is because the zakat on gold and silver is not calculated as per the price one has paid for it while purchasing, but it is calculated on the current market price of the holding.
Who is eligible to receive Zakat?
This charity in Islam is designed not only help the needy but also curb inequality. It must be given to Muslims who meet the criteria of need and lack of wealth. They include:
- The poor- those with little or no income
- The needy, with some resources but not enough to sustain themselves
- Sytranded travellers
- People in debt
- Captive and slaves-Zakat was historically used to free enslaved people or captives
- People working in welfare
- Zakaat administrators-individuals or organisations who distribute zakat
Your own family members (who are your financial responsibility, including parents, children, and spouses) cannot be given zakat. And people whose wealth is above nisab cannot receive zakat either.
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