Zakat

AAA

DEFINITION of 'Zakat'

A term used in Islamic finance to refer 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 in order to physically and spiritually purify their yearly earnings that are over and above what is required to provide the essential needs of a person or family.

INVESTOPEDIA EXPLAINS 'Zakat'

There are comprehensive descriptions in religious texts describing minimum amounts of zakat with regards to farm produce, cattle, business activities, paper currency and precious metals such as gold and silver.

The most common level of zakat on wealth from cash, equities and gold is 2.5% of the total value.

RELATED TERMS
  1. Murabaha

    An Islamic financing structure, where an intermediary buys a ...
  2. Shirkah

    An Islamic finance term that describes a partnership between ...
  3. Islamic Banking

    A banking system that is based on the principles of Islamic law ...
  4. Free Right Of Exchange

    An investor's right to transfer an asset to another party without ...
  5. Charitable Donation

    A gift made by an individual or an organization to a nonprofit ...
  6. Riba

    A concept in Islamic banking that refers to charged interest. ...
Related Articles
  1. Taxes

    Deducting Your Donations

    Generosity may be its own reward, but some charitable giving also provides personal tax benefits.
  2. Retirement

    Working With Islamic Finance

    There is no division between the spiritual and the secular in this type of socially responsible investing.
  3. Budgeting

    It Is Better To Give AND Receive

    You give to benefit others, but there can be perks for you too.
  4. Investing

    What is an Islamic investment policy?

    Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual and the secular.The establishment of an Islamic investment policy, ...
  5. Professionals

    How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus.
  6. Fundamental Analysis

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...
  7. Fundamental Analysis

    Why are OTC (over-the-counter) transactions controversial?

    Learn more about over-the-counter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges.
  8. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  9. Fundamental Analysis

    What is arbitrage pricing theory?

    Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate risk-free profit opportunities.
  10. Fundamental Analysis

    What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center