Zakat

By DANIEL LIBERTO
What Is Zakat?
Zakat is an Islamic finance term referring to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes. Zakat is a mandatory process for Muslims and is regarded as a form of worship. Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
KEY TAKEAWAYS
Zakat is a religious obligation, ordering all Muslims who meet the necessary criteria to donate a certain portion of wealth each year to charitable causes.
Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5%, or 1/40 of a Muslim’s total savings and wealth.
If personal wealth is below the nisab during one lunar year, no zakat is owed for that period.
How Zakat Works
Zakat is one of the Five Pillars of Islam: the others are a declaration of faith, prayer, fasting during Ramadan and the Hajj pilgrimage. It is a compulsory procedure for Muslims earning above a certain threshold and should not be confused with Sadaqah, a term that refers to giving charitable gifts out of kindness or generosity.
Religious texts offer comprehensive descriptions of the minimum amount of zakat that should be distributed to those less fortunate. It generally varies, depending on whether wealth came from farm produce, cattle, business activities, paper currency, or precious metals, such as gold and silver.
Zakat is based on income and the value of possessions.                The common minimum amount for those who qualify is 2.5%,    or 1/40 of a Muslim’s total savings and wealth.
Source: investopedia.com