The third pillar of Islam: zakah (poor due, charity tax)
Zakah is the third pillar of Islam and Allah has made the payment of zakaah obligatory upon everyone who owns the nisaab (minimum amount) for one year.
Now this is going to look complicated but do not worry.
We are going to talk about gold and silver as that was the currency at the time of the Prophet peace be upon him. We are also going to use the words such as dinars. Even today in Arabia the use the words Dinar for Currency in countries such as Saudi Arabia and then we will covert that to dollars.
There is a minimum set limit and if you stay within that minimum then there is no zakah obligatory on you. You also have to have had that money in your possesion for a whole year.
Zakat ul-maal (i.e zakat on wealth) in sharia is required for the two types of naqd gold and silver and whatever serves the same funtion in modern times such as Dollar, Euros, Pounds, Rupees (whatever currency serves your country uses)
Nisaab for gold as our Prophet (peace be upon him) has informed us (and for currencies made from gold) is 20 mithqaalan, a measure which is equivalent to 85 grams of pure gold (1 mithqaal = 4.25 grams). It becomes incumbent upon anyone who owns such an amount in any form to pay zakat on it in the amount of 2.5%.
Nisaab for silver and currencies made from silver is 200 dirhams, which is equivalent to 595 grams of pure silver (1 dirham = 2.975 grams). Likewise, it becomes incumbent upon anyone who owns such an amount in any form to pay zakat on it in the amount of 2.5%.
There is dispartity between the value of gold and silver in our times. So the best thing to do is for a person is to assess how many dollars you have had in your possession for a complete lunar year (the Hijri or lunar year year is bit shorter than the Solar year) If the amount reaches the value of nisaab for silver or more, then he should pay from it for every 100 dollars, 2.5 dollars (i.e., 2.5%) . Zakah is to be spent on the prescribed benficiaries as specified by shariah,
The rate of zakaah on gold, silver, other metals and trade goods is one quarter of ten percent. On agricultural produce and fruits the amount is one-tenth if it is irrigated (by artificial means), and one-half of one-tenth if it is not irrigated (by artificial means, i.e., it is watered by rainfall or other natural means). Concerning an aam animals (i.e., sheep, goats, cattle and camels) the details are explained in the books of fiqh Whoever pays zakaah, Allah expiates his sins thereby, and blesses his wealth, and stores up for him a great reward. Allaah says :
"And perform As-Salaah (Iqaamat-as-Salaah), and give Zakaah, and whatever of good (deeds that Allah loves) you send forth for yourselves before you, you shall find it with Allah. Certainly, Allaah is All-Seer of what you do"[al-Baqarah 2:110]
Allah has enjoined upon the Muslims zakaah which is taken from the rich and given to the poor. Allah says
"Take Sadaqah (alms) from their wealth in order to purify them and sanctify them with it, and invoke Allah for them. Verily, your invocations are a source of security for them"[al-Tawbah 9:103]
Withholding zakaah brings disasters and evils upon the ummah. Allah has threatened those who withhold it with a painful torment on the Day of Resurrection. He says
"O you who believe! Verily, there are many of the (Jewish) rabbis and the (Christian) monks who devour the wealth of mankind in falsehood, and hinder (them) from the way of Allaah (i.e. Allaah s religion of Islamic Monotheism). And those who hoard up gold and silver (Al-Kanz: the money, the Zakaah of which has not been paid) and spend them not in the way of Allaah, announce unto them a painful torment. On the Day when that (Al-Kanz: money, gold and silver, the Zakaah of which has not been paid) will be heated in the fire of Hell and with it will be branded their foreheads, their flanks, and their backs, (and it will be said unto them:) This is the treasure which you hoarded for yourselves. Now taste of what you used to hoard " [al-Tawbah 9:34-35]
When a Muslim pays his zakaah, it is not permissible for him to give it to anyone except those whom Allaah mentions in the following Quranic aayah :
"As-Sadaqaat (here it means Zakaah) are only for the Fuqaraa (poor), and Al-Masaakeen (the poor) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allaah s Cause (i.e. for Mujahidoon those fighting in a holy battle), and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allaah. And Allaah is All-Knower, All-Wise "[al-Tawbah 9:60]
Here are some Hadith on Zakah
Al-Bukhaari (1454) narrated from Anas (may Allah be pleased with him) that Abu Bakr (may Allah be pleased with him) wrote to him this document when he sent him to Bahrain: “This is the obligatory charity that the Messenger of Allah (blessings and peace of Allah be upon him) enjoined upon the Muslims and that Allah enjoined upon His Messenger:… for silver, one quarter of one tenth.”
Abu Dawood (1572) narrated from ‘Ali (may Allah be pleased with him) that the Prophet (blessings and peace of Allah be upon him) said: “If you have two hundred dirhams and one full year has passed, then five dirhams are due on them. You do not have to pay anything - i.e. on gold -- unless you have twenty dinars; if you have twenty dinars and one full year has passed, then half a dinar is due on them, and if the number increases then work it out on this basis.”
Classed as saheeh by al-Albaani in Saheeh Abi Dawood.
Ibn Maajah (1791) narrated from Ibn ‘Umar and ‘Aa’ishah (may Allah be pleased with them both) that the Prophet (blessings and peace of Allah be upon him) used to take from every twenty dinars or more, half a dinar, and from forty dinars, one dinar.
Classed as saheeh by al-Albaani in Saheeh Ibn Maajah.
Ibn Abi Shaybah narrated in al-Musannad (9966) with a jayyid isnaad from ‘Ali (may Allah be pleased with him) that he said: Nothing is due on anything less than twenty dinars; for twenty dinars, half a dinar is due; for forty dinars, one dinar is due. For anything more than that, it is to be worked out.
Irwa’ al-Ghaleel, 3/291