What is Zakat?
An annual 2.5% alms on qualifying wealth above the nisab — one of the Five Pillars of Islam.
Zakat is 2.5% of net zakatable wealth (cash, gold, silver, investments, business assets, minus immediate debts) once it exceeds the nisab and has been held for a lunar year (hawl).
Example
Net wealth 900,000 → Zakat 22,500.
What counts as zakatable wealth
Zakat is due on your net productive wealth: cash and bank balances, the value of gold and silver, shares and other investments, money owed to you that you expect to receive, and business inventory. From that total you subtract short-term debts and immediate liabilities. Your home, car and personal belongings that you use are not counted.
Nisab and the lunar year
Zakat is only due if your net zakatable wealth stays above the nisab threshold for one full lunar (hijri) year. Nisab is set by the value of 87.48g of gold or 612.36g of silver; many scholars recommend using the lower silver figure so that more people give. The rate is 2.5% of the qualifying wealth, traditionally distributed to eight categories of recipients named in the Qur'an.
Step-by-step: the Zakat formula
Zakat is calculated as: Zakat due = (Total zakatable assets − Deductible short-term liabilities) × 2.5%, applied only once net wealth has stayed above the nisab threshold for a full lunar year (hawl). Zakat Foundation of America describes the rate as "the 2.5 percent rate established by the Prophet" applied to "zakatable wealth-kinds calculated in monetary value" — cash, gold, silver, investments and business inventory, minus money owed and immediate debts. There's no sliding scale or bracket system: it's a flat 2.5% on everything that qualifies, once the two conditions (above nisab, held for one lunar year) are both met.
Common mistake: treating Zakat like an annual "tax anniversary"
Some people assume Zakat is due on one fixed calendar date each year, like an income-tax filing deadline. In fact, the lunar year (hawl) for each item of wealth starts running from the date it individually first reached the nisab threshold, so if your ordinary savings crossed nisab in one month and a separate investment crossed it in a different month, those two hawl periods can end on different dates — many people simplify this by picking one annual date (often in Ramadan) and settling Zakat on their total wealth on that date each year, but strictly the obligation attaches per asset from when it first met nisab.
A second example: business wealth vs personal savings
The earlier example used simple net wealth of 900,000 giving Zakat of 22,500. Now take someone with 400,000 in personal savings and a small trading business holding 700,000 in inventory plus 150,000 owed to it by customers, against 250,000 owed to suppliers. Zakatable wealth = 400,000 + 700,000 + 150,000 − 250,000 = 1,000,000, so Zakat = 1,000,000 × 2.5% = 25,000. Business inventory and money owed to you (that you expect to collect) are zakatable; a home, car and personal-use items are not — only money you owe others in the near term is deducted, not long-term liabilities like a mortgage balance.
How Zakat relates to Nisab
Zakat is the payment; Nisab is the threshold that decides whether it's owed at all. Nisab is set by the value of a fixed weight of gold or silver, which moves with metal prices, so the cash threshold for "does Zakat apply to me" changes over time even though the 2.5% rate applied once you're above it never does.
FAQ
Is Zakat due on the same date every year for everyone?
Not strictly — each asset's lunar year (hawl) starts from when it individually first reached the nisab threshold, so different assets can technically have different due dates. In practice many people simplify this by settling all their Zakat on one chosen annual date, often during Ramadan.
Can I deduct a mortgage or long-term loan balance before calculating Zakat?
Generally no — only short-term, immediately due debts and liabilities are deducted from zakatable wealth. A long-term mortgage or loan balance is typically not subtracted in full; consult a scholar or your local zakat authority for how they treat long-term debt.
Sources
- Nisab and Zakat Calculation in a Nutshell — Zakat Foundation of America (accessed 26 September 2026)
- What is Nisab — Islamic Relief Worldwide (accessed 26 September 2026)