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Zakat On Textile Manufacturing Unit
Assalamu Alaikum wa Rahmatullahi wa Barakatuh,
I would like to seek your guidance regarding the obligation of Zakat in relation to my business.
I am a 50% partner in a textile factory. We operate the factory on an overhead basis and have invested capital into the business. From the operations of the factory, we generate monthly profits. For example, if the factory earns around 1,000,000 PKR per month, the distribution is generally as follows:
- Each partner withdraws around 200,000 PKR as salary, on which we also pay government taxes.
- In addition to the salary, each partner may withdraw another 200,000 PKR as profit distribution.
- The remaining amount from the profit is usually reinvested back into the factory for maintenance, working capital, and expansion.
My question is regarding how Zakat applies in this situation:
- We already calculate and pay Zakat on the cash that comes into our personal accounts (salary and profit withdrawals).
- However, the factory itself has machinery, stock, raw materials, and other assets, and it operates as a separate entity which also pays its own taxes.
In this situation, do we also have to calculate Zakat on:
- The inventory or stock in the factory?
- The working capital and assets inside the business?
Or is Zakat only due on the money that we personally withdraw and hold in our own accounts?
I would greatly appreciate your guidance according to Shariah.
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2 Replies
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Zakat On Textile Manufacturing Unit
updated 5 months, 4 weeks ago
2 Members
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Replies
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Please get an overview of Sharia of Zakat in accordance with Ghamidi Sahab’s understanding at the following link:
Discussion 121490 • Reply 121494
It is important because the answer below is ideologically rooted in the description provided above.
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Your Zakat obligation would be as follows:
Production Zakat @5% will apply to the value of Gross Production in the factory on value addition only. Your share would be 50% of that Zakat obligation. (Raw material, being a part of the means of production, is considered exempt from Zakat. Value addition will be considered actual production in this case.)
Wealth Zakat @2.5% of your total wealth at year-end. 50% of Cash in hand/Cash at bank available with business as at that date, should also be included in your wealth calculation, if it is at your disposal and readily available for distribution. However, if it is tied up in the entity’s working capital equation, then it will also be considered as part of means of production, hence exempt.
– Any taxes paid (either by the entity or individually) can be offset against the Zakat obligation.
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Additional explanation has been added in the above reply to avoid any confusion.
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