One of the most important principles of Islam is that all things belong to God, and that wealth is therefore held by human beings in trust.
The word Zakat means both 'purification' and 'growth'. Our possessions are purified by setting aside a proportion for those in need, and, like the pruning of plants, this cutting back balances and encourages new growth.
Zakat is the amount of money that every adult, mentally stable, free, and financially able Muslim, male and female, has to pay to support specific categories people.
Zakat is obligatory when a certain amount of money, called the nisab is reached or exceeded. Zakat is not obligatory if the amount owned is less than this nisab. The nisab (or minimum amount) of gold and golden currency is 20 mithqal, this is approximately 85 grams of pure gold. One mithqal is approximately 4.25 grams. The nisab of silver and silver currency is 200 dirhams, which is approximately 595 grams of pure silver. The nisab of other kinds of money and currency is to be scaled to that of gold, 85 grams of pure gold. This means that the nisab of money is the price of 85 grams of 999-type (pure) gold, on the day in which Zakat is paid.
When is Zakat Due ?
1. Passage of One Lunar Year:
Zakat is obligatory after a time span of one lunar year passes with the money in the control of it's owner. Then the owner needs to pay 2.5% (or 1/40) of the money as Zakat. (A lunar year is approximately 355 days).
2. Deduction of Debts:
The owner should deduct any amount of money he or she borrowed from others; then check if the rest reaches the necessary nisab, then pays Zakat for it.
If the owner had enough money to satisfy the nisab at the beginning of the year, then the money increased (in profits, salaries, inheritance, grants...etc.), the owner needs to add the increase to the nisab amount owned at the beginning of the year; then pay Zakat, 2.5%, of the total at the end of the lunar year. (there are small differences in the fiqh schools here)
Each Muslim calculates his or her own Zakat individually. For most purposes this involves the payment each year of two and a half percent of one's capital.