Islam consists of five core pillars which a Muslim must fulfil in his/her lifetime, Profession of Faith (shahada), Prayer (salat), Alms (zakat), Fasting (sawm), Pilgrimage (hajj).
Zakat is compulsory on all Muslims that have a certain standard of living. According to Islamic law, every believer is required to donate a certain/fixed portion of the income that they earn, the sole purpose of Zakat is to help others in need. Zakat becomes compulsory when a Muslim has a certain amount in cash, gold or property in his/her possession for more than 12 months. After the completion of 12 months a certain amount of zakat must be paid on this asset according to Islam.
In Pakistan and also overseas, there are numerous real estate and property owners, calculating zakat on property is not always an easy task and leads to a lot of confusion. We are here to help!
Some questions that property owners usually ask regarding zakat on their property are as follows:
- Is it compulsory to pay zakat on real estate/property?
- If zakat is compulsory on property then what kind of property or real estate falls in the zakat bracket?
- Is zakat payable on agricultural land?
Understanding zakat on property becomes easier when it is divided into various property types.
Properties on which Zakat is not applicable
Zakat is not applicable on any property or real estate which is bought for personal use, here are some examples of properties that are acquired for individual use:
- Property acquired for establishing residence (Home)
- Agricultural Land
- Shops (intent to do business)
A land which was bought just for the sake of development does not fall under the zakat bracket because this land becomes one of your capital asset and zakat is not liable on personal items. However, if a land is to be used for rental purposes to earn profit on the land/property, in that case, Zakat will be applicable after the rent reaches the Nisab quantity.
(Nisab is the threshold of wealth a Muslim must possess for more than 12 months before Zakat becomes compulsory on them)
The properties bought for personal use are exempted from Zakat.
The Properties on which Zakat is applicable
Zakat is applicable on those properties that are not being used by a particular owner, and properties that have been rented out, in this scenario zakat is applicable on the rent amount.
Here is a list of properties on which zakat is compulsory:
- House for rent purposes
- Property acquired to advertise
- Land for sale
Zakat is normally applicable on all rental properties as they are not in the personal use of the owner. In rented properties zakat is applicable on the collected rental amount.
In case a person purchases land with the intention of selling the land, then he/she is obliged to pay Zakat, which will be applicable on the particular selling price of the land, you can pay 2.5% of the total selling amount of that house/land.
For example, if your land/house is sold for Rs. 10 million, then the applicable zakat on this amount will be Rs. 250,000.
Who can receive Zakat?
After addressing just about all possible issues associated to zakat on property, now it is wise to see and check who this zakat should be given to as per Islamic teachings. Following is a list of people (men & women) to whom zakat money can be given:
- The Indigent (without means of livelihood)
- The Needy (cannot fulfill their simple needs)
- The Zakat collectors
- Recently converted to Islam
- Travelers in need
In essence, Zakat is a spiritual obligation on every Muslim who satisfies the necessary guidelines of being obligated to pay Zakat with the doctrine of Islam. Simply this is you helping people in need, which in itself is a Nobel deed.
How to calculate Zakat on property?
“Nisab” helps in calculating and understanding Zakat. Nisab is the amount of wealth or possession on which Zakat becomes applicable. According to Nisab, if someone possesses 87.48 grams of gold or 612.36 grams of silver or money worth these items for more than one year, then that person is obligated to pay Zakat on these assets.
To calculate Zakat on properties or assets, calculate the entire amount of the properties applicable for Zakat and multiply with 2.5%.
Let’s say, you have Rs. 1,000,000 and you want to check how much zakat is there on this amount?
Use this tool: 1,000,000*2.5% = 25,000 is the payable Zakat amount on your money.