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Zakat On Tax Free Salaries Earned With Basic Salary And Allowances
A person who is doing a job in UAE earns say a gross Salary of 14K AED / month ( which is tax-free) with following break-down
- 10K is Basic Salary
- 3K is Housing / Rent allowance. Lets assume he ends up spending 2K on rent/housing every month
- 1K is Fuel / Transport allowance. Lets assume he ends up spending half of it on transport every month
The question is , will he need to pay
a) 10% of 10K in Zakat every month ? ORb) 10% of 14K every month ? OR
c) 10% of 11.5K every month ? ( 10 + 1 + 0.5 K is what he ends up saving every month from that income )
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4 Replies
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Zakat On Tax Free Salaries Earned With Basic Salary And Allowances
updated 1 year ago
2 Members
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4
Replies
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Firstly, whatever allowances are exempt by the state for tax purposes will also be considered exempt for Zakat purposes.
Secondly, The principle is that zakat is on production or salary you earn for doing a job. If your employer is providing you money for something that’s required for you or is essential to be provided for you to do your job (e.g. transport allowance or rent allowance etc.), that money is not considered production, hence there is no zakat on it.
For example: If they’re providing you an allowance for your phone bill, they have assumed that your job requires use of phone and instead of providing you with a company phone, they have made an administrative decision to give you the money instead. That’s exempt from production / earnings zakat. However, if they provide you $100 for phone bill but you end up spending only $80, the remaining $20 will end up in your bank account. When you pay 2.5% zakat on assets once a year, it will be covered there.
Keeping this principle in mind, you will be paying 10% Zakat on your salary of 10K per month, with 2.5% Zakat on Assets once a year, which may or maynot include the remaining amount of Allowances as part of your wealth as at that date.
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Regarding Nisab For Production Zakat In Tax Free Countries, please refer to the following thread:
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Thank you brother Umer
I have a follow-up ( slightly unrelated question ).
I understand that Zakat is to be collected by the State / Tax authorities but if that’s not the case and a person ends up choosing the Zakat recipients himself. Is it possible to pay this amount to your siblings ( who aren’t necessarily poor, but can still put the money to good use e.g. for their kid’s education, clothes, etc ) and will they be deserving recipients ….or should Zakat in such cases only be given to extremely poor people who have more basic and immediate needs?
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Zakat is not for the extremely poor only, rather it is for the needy as well. Infact, parents and close relatives have first right on Zakat, if they have any such need.
Please refer to the videos in the following thread for further details:
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(Note: In future, please post questions unrelated to the main question as separate topic.)
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