With the fasting month of Ramadan under way, many Muslims around the world are preparing to fulfil another essential pillar of their faith: Giving zakat.

Zakat is a compulsory form of charity in Islam, aimed at supporting the needy and promoting economic equality.

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While many choose to pay zakat during Ramadan for its spiritual rewards, it can be given at any time within a year.

Since last Ramadan, the price of gold has nearly doubled, from about $2,900 per ounce to more than $5,100 today.

A higher gold price directly affects zakat in two ways: First, it changes the eligibility threshold (nisab), meaning more individuals may now be exempt from paying zakat. Second, it increases the monetary amount owed based on one’s gold holdings, resulting in a greater overall contribution to charity.

In this visual explainer, we answer common questions about zakat to help you understand its purpose, calculations and types.

What are zakat and sadaqah?

Zakat is one of the five pillars of Islam, making it a core act of worship. The word zakat means purification or growth and is commanded in the Quran as a means to purify wealth, promote social justice and help those in need.

Zakat is mandatory for Muslims who meet the financial threshold, known as nisab, and is given annually at a fixed percentage of 2.5 (one-40th) of one’s wealth. More on how this is calculated, later.

Sadaqah, on the other hand, is a voluntary charity of any amount that can be given at any time.

Who is required to give zakat?

Zakat is obligatory for adult Muslims whose wealth is above the nisab threshold, the minimum amount needed to be eligible to pay zakat.

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This year, the nisab is equivalent to 85g (3 troy ounces) of gold, or roughly $15,000 based on current market prices. Last year, the nisab was about $8,000.

Although 85g is a widely accepted modern standard used by many organisations, the classical weight is 20 mithqals or 7.5 tolas, both traditional units of weight used for measuring precious metals, equivalent to roughly 87.48g.

In addition to the gold standard for determining the nisab amount, there is also a silver standard. The nisab based on silver is equivalent to 595g (19 troy ounces) of the metal. This accommodates different economic conditions and ensures that zakat is accessible and relevant to a wide range of people.

If a Muslim’s wealth remains above this threshold for a full lunar year, they must pay zakat.

How is zakat calculated?

The standard zakat rate is 2.5 percent (one-40th) of one’s eligible wealth.

For example, if one’s wealth liable to zakat is $20,000, the due amount is $500 ($20,000 × 2.5% = $500).

Calculation of zakat if you own gold

If you own physical gold like bars, coins, or jewellery, you should calculate your zakat based on its current market value, not the price you originally paid.

Understanding the value of a gold item requires knowing its weight in troy ounces alongside its purity in karats. One troy ounce is equal to 31.1035g.

At $5,100 per troy ounce, 1g of pure gold is worth about $164.

Karat or carat (abbreviated as “K” or “ct”) measures the purity of a gold item. Pure gold is 24 karats, while lower karats such as 22, 18, and 9 indicate that the gold is mixed with less expensive metals like silver, copper, or zinc.

To determine the purity of gold, jewellers are required to stamp a number onto the item, such as 24K or a numeric value like 999, which indicates it is 99.9 percent pure. For example, 18K gold will typically have a stamp of 750, signifying that it is 75 percent pure.

It’s worth noting that different Islamic schools of thought differentiate between gold used as wearable jewellery and gold stored as an investment when determining whether it is subject to zakat.

To calculate zakat on gold jewellery, you can follow this formula:

1. Pure weight (24k)  = (Total weight of your gold item in grammes x karats)/24
2. Gold price (g) = Current price of gold(in troy ounces)/31.1035
3. Zakat amount = (Pure weight (24k) in grammes x gold price in grammes) x 0.025

For example, if you own an 18-karat necklace that weighs 40g:

1. Pure weight (24k) = (18 x 40)/24 = 30g
2. Gold price (g) = $5,100/31.1035 = $164
3. Zakat amount = (30 x 164)x0.025 = $123

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If the necklace is your only savings, you would be below the nisab threshold. If not, you would be required to pay $123 zakat for that item of gold.

You can use the calculator below to calculate zakat owed on gold items:

What are the different types of zakat?

There are two main types of zakat: Zakat al-mal and zakat al-fitr.

Zakat al-mal, meaning “zakat on wealth”, is the most commonly known form of zakat. It is an obligation requiring Muslims whose wealth exceeds the nisab threshold to donate 2.5 percent of their assets annually.

Zakat al-fitr is a mandatory charitable donation of food before the Eid prayer, marking the end of Ramadan. It is given to help those in need to celebrate Eid. The amount is generally equivalent to the cost of one meal for a person.

What assets are zakatable?

Zakat must be paid on assets and savings, kept to resell or profit from, including:

• Saving and cash
• Gold and silver
• Business assets and profits
• Investments
• Agricultural produce and livestock

Zakat is not required on assets in use for daily life, such as:

• The house you live in
• Your car
• Essential property like clothing, furniture and appliances

Who can receive zakat?

Zakat is designed to help alleviate poverty and support the less fortunate. So it must be given to Muslims who meet the criteria of need and lack of wealth. The Quran specifies eight categories of people eligible to receive zakat:

1. The poor – those with little or no income
2. The needy – those who have some resources but not enough for a stable life
3. Zakat administrators – individuals or organisations responsible for collecting and distributing zakat
4. New Muslims – converts or those inclined towards Islam who need financial support
5. People in debt – those burdened by debts they cannot repay
6. Stranded travellers – those who lack financial support while away from home
7. People working in welfare – individuals engaged in religious, educational, or humanitarian efforts
8. Captives and slaves – historically used to free enslaved people; now applied to modern equivalents like bonded labour.

Zakat cannot be given to immediate family members who are considered one’s financial responsibility (like parents, children or spouses). It cannot be given to those who have wealth above the nisab threshold, either.

When should zakat be paid?

Once a Muslim’s wealth surpasses the nisab threshold, they are required to pay zakat, provided they have had possession of this wealth for a full lunar year (known as hawl).

So, if someone’s wealth remains above the nisab threshold for an entire year, they are obligated to pay zakat.

However, if wealth drops below the nisab during the year, there is no need to pay zakat.

For example, if someone’s wealth exceeds the nisab for several months but then drops below it before completing a full year, they are not required to pay zakat. Only when their wealth remains above the nisab for a continuous lunar year does the obligation to pay zakat arise.

If someone misses paying zakat in previous years, they must calculate and pay it retroactively.

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Zakat can be given directly to those in need or through trusted charities and organisations that distribute it accordingly. While it is encouraged to help those nearby, it can also be given internationally where there is a greater need.

By requiring wealthy individuals to give a portion of their assets, zakat prevents wealth from accumulating in the hands of a few and encourages a more equitable distribution of resources, promoting economic balance and reducing income inequality.