Zakat on Unit Trust Investment Article
Zakat is one of the five pillars of Islam. The literal meaning of zakat is to ‘cleanse’, ‘purify’ or ‘increase’. The purpose of zakat is to purify one’s wealth as commanded by Allah Al-Mighty. Zakat is also an acknowledgement that everything we own belongs to Allah SWT. Prophet Muhammad (PBUH) has said: “Charity and zakat wipe away sin as water extinguishes fire.” (Narrated by Imam al- Tirmidhi from An-Nawawi’s 40 Hadiths, Hadith No.29).
Zakat is payable on unit trusts one owns based on the rulings of the Fatwa Committee for the State of Selangor which state that:
“The law on zakat on shares invested in the capital market is the same as the zakat on business goods (urudh tijarah), regardless whether the purpose of the share investment is for trading (buying and selling) or for savings.” – March 31, 2011.
“The imposition of zakat on unit trust is based on investment of business goods (urud tijarah). The obligatory zakat to be given is 2.5%.” – July 7, 2011. Please refer to the LZS website: http://www.zakatselangor.com.my/fatwa-zakat-negeri-selangor/
The methodology of calculating zakat is as follows:
(Value of Investments at the end of haul + profit earned per annum) × 2.5%
It is compulsory for Muslims who are free (not a slave) and whose assets meet certain conditions and criteria, to pay zakat. Any Muslim who possesses the required nisab (the minimum amount of wealth that one must have before zakat becomes payable) for one haul (one year according to Islamic calendar or solar calendar) is bound to pay zakat on that wealth. Abdullah Ibn Umar R.A. narrated from the Prophet Muhammad (PBUH) that:
“Whosoever earns any money, he is not liable to pay zakat (on those monies) until the period of a year has passed (while still possessing the same amount of money).” – (Jami’ al-Tirmidhi, No. 632)
The nisab is equivalent to the current market value of 85 grams of pure gold. In Malaysia, the value may vary from state to state, and from time to time. A haul is the completion period of one year either according to the Islamic calendar which is 354 days or according to the solar calendar which is 365 days. Zakat is only payable on assets that have been held for at least this period.
If zakat is calculated based on the Islamic calendar, the rate of zakat to be used is 2.5%; whereas for solar calendar the rate is 2.577% (365 days X 2.5% / 354 days). This is to compensate for the difference between the Islamic and solar calendars. (See http://www.zakatselangor.com.my/info-zakat/makluman-umum-kutipan/
Calculate your zakat on unit trust investment here.
Note: This Zakat article has been vetted and endorsed by Lembaga Zakat Selangor and ZICO Shariah Advisory Services Sdn Bhd