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Zakat On Service Business Income
Asslamoalikum
I run a service-based business and keep my business savings solely as an emergency backup. I regularly deduct 10% from our monthly profits to contribute to society (For purpose of charity because I didn’t know whether I have to pay zakat on that or not) and I also paid all required taxes. Given this, do I still need to pay zakat on my business income and savings ? As I am confused my intention was just giving charity and I didn’t have this thing in my mind about zakat. Please advise.
Thanks
JazakAllah
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3 Replies
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Zakat On Service Business Income
updated 6 months, 4 weeks ago
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Replies
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Wa’alikum Salam.
There are two major domains of Zakat that apply to the most people – namely ‘Wealth and Production’
For production: zakat applies on gross amount as soon as production happens. It is calculated @ 5%, 10% or 20% depending on the mix of Labor and Capital i.e.
5% on amount earned from a combination of both labor and capital
10% on amount earned from either labor or capital
20% on amount earned without labor or capital
AND
For wealth: zakat applies once a year on a fixed date on all the wealth @2.5% (excluding exemptions: (i) items of personal use and (ii) means of production). This is as per established Sunnah of Prophet (SWS) for wealth and Production.
When production occurs, the zakat becomes due immediately on the gross amount (irrespective of the fact when one actually pays it). The same applies to the Service sector earning, Salary earning, Manufacturing business etc. However, one can calculate it on yearly gross earning and can pay it in installments as well.
After payment of this Zakat, whatever left is considered one’s wealth. And if that wealth still stays with the person till the year-end i.e. the date fixed once a year for calculation of Zakat on wealth, then the whole wealth is subject to Zakat (2.5% of the sum total of all of your cash as well as the current value of all other assets in your possession on the day when your zakat becomes due). If one spends the same wealth one day before the year-end date, then there is no zakat on that wealth.
Both these heads are subject to Zakat only if they reach the set Nisab for Zakat Obligation.
Nisab:
– Nisab for production / earnings is the minimum amount below which your state exempts tax or zakat on earnings. If your state does not provide a nisab then you can use the standard nisab of 653 kg of Dates or equivalent value.
– Nisab for assets/wealth is the minimum amount below which your state exempts tax or zakat on assets. If your state does not provide a nisab then you can use the standard nisab of 642 grams of silver or equivalent value.
However, there can be difference of opinion on whether Zakat percentage should be applied on amount only above Nisab threshold or on the whole amount as soon as it crosses the Nisab threshold. Ghamidi Sahab prefers the latter opinion, but it is not something fixed in Sharia.
Taxes paid in any country (e.g. U.S.) that uses it for the benefit of its citizens can be deducted from your total zakat obligation.
You may enter appropriate numbers in our Zakat Calculator after reading the description for each box. When you reach the end, it will generate a statement showing you exactly what you owe after any applicable deductions, and what percentage was applied to each category. It’s also a great way to learn the sharia of zakat.
For details about the sharia of zakat as well as frequently asked questions in this regard please see:
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Thank you so much for your detailed and helpful answer. I really appreciate you taking the time to explain everything so clearly.
I just have a few follow-up questions that I wanted to clarify.
First, what is the correct time frame for paying zakat on production? Should it be calculated and paid yearly, or can it be paid on a monthly basis?
Secondly, I have been contributing 10% in advance every month. However, my main concern is that I was not sure whether zakat was applicable on production or on business profits. Because of this uncertainty, I used to give that amount with the intention of general charity rather than zakat. In this case, do I need to re-calculate and pay zakat again properly?
My last question is regarding business savings. Do I need to pay zakat on the amount I have saved as a backup or emergency fund for the business?
JazakAllah khair for your guidance. I look forward to your advice.
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Time frame for paying Zakat on production:
You may choose to calculate and pay Zakat on a yearly or monthly basis—whichever is easier and more practical for you.Regarding charity paid in the past:
It is commendable to estimate your past Zakat obligations and adjust them against any charity you previously gave. If, after this adjustment, some Zakat still remains due, you may pay it now. However, if calculating past amounts is too difficult, you are not required to do so; your earlier charitable giving can be considered as covering those past obligations.Your formal responsibility begins from the time you became aware of the relevant religious rulings. Unintentional mistakes or lack of knowledge in the past do not make a person accountable. Still, it is praiseworthy, though not obligatory. to make up for past shortcomings if one has the means and capacity.
Regarding business savings:
Savings are generally subject to Zakat. The main exemptions include personal-use items, means of production, and the Nisab threshold. If certain savings are genuinely set aside for future personal expenses or unavoidable obligations, such as upcoming staff salaries during financial difficulty, then these may be exempt under the principle of personal-use necessities. For such exemptions, the savings must be clearly earmarked for that specific purpose. General or unspecified savings do not qualify for exemption.
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