What is Zakat?
Zakot
In short
The obligatory 2.5% annual alms on wealth above the nisab held for a lunar year. Methods for stocks vary.
Learn more →Also known as: zakot, nisab
Zakat is one of the five pillars of Islam: an obligatory 2.5% annual alms on wealth that exceeds the nisab and has been held for a full lunar year. The nisab is usually measured as the value of 85 grams of gold (595 grams of silver according to some scholars), so its dollar amount changes with the gold price.
Two main approaches for stocks
- Shares held for trading (intended for short-term sale): 2.5% of the full market value on your zakat date.
- Long-term investment (held for dividends and growth): many scholars allow calculating zakat only on the company's zakatable assets (cash, receivables, inventory) attributable to your shares. If that data is hard to find, many people use the first method as a precaution.
Practical points
Pick a zakat date and, each year on that day, add up the value of your portfolio, cash and other zakatable wealth. A lunar year is about 11 days shorter than a solar year; those who calculate on a solar year sometimes use a 2.577% rate. Dividend purification is a separate obligation from zakat.
Methods vary among scholars, so it's advisable to consult a trusted scholar when choosing your approach. To calculate: zakat calculator.
For information only, not a fatwa.
100 shares priced at $180. Zakat is calculated differently depending on intent; purification is a different obligation altogether and is not deducted from zakat.
Example
An illustrative case. Assume the nisab is $7,000 (the real figure depends on the gold price).
Trader approach: on the zakat date, shares are worth $12,000 + cash $3,000 = $15,000 — above the nisab.
- Zakat: $15,000 × 2.5% = $375.
Long-term investor approach: 100 shares; according to the company's report, zakatable assets per share are $12.
- Zakatable amount: 100 × $12 = $1,200.
- Zakat: $1,200 × 2.5% = $30 (zakat on other wealth, such as cash, is added separately).
Mistakes and tips
Use the same zakat date every year and the values on that day — fluctuations during the year don't count.
Decide whether your shares are for trading or long-term investment, because the calculation method depends on it.
Don't fold your purification amount into zakat — they are two separate calculations.
Count not only stocks but also cash, gold and other zakatable wealth together.
Halal finance terms are explained for general information — not a fatwa. Not investment advice either.
Calculate it
Frequently asked questions
- How is zakat calculated on stocks?
- For shares held for trading, 2.5% of market value. For long-term investments, many scholars allow calculating it only on the company's zakatable assets attributable to your shares.
- Do I pay zakat on stocks that are at a loss?
- Zakat is based on the value on your zakat date, not on what you paid. If your total zakatable wealth exceeds the nisab, zakat is due.
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