How To Calculate Zakat On Income in Malaysia 2023?

Zakat on income (or zakat pendapatan in Malay) is one of the categories of wealth zakat. It is levied on all Muslims if their annual earnings, allowances, and income exceed the threshold set in Islam (fulfilling the haul condition). However, many people are still unclear about what zakat on income is, how to calculate zakat in Islam, rate of zakat in Islam and many more.

9 Important Things About Zakat On Salary You Need to Know

Income zakat, also known as salary zakat (zakat on salary), is a familiar concept among Muslims in Malaysia. It constitutes the fourth pillar of Islam and is a duty for those who are financially able. This article will help you further understand the basics of income zakat, making it easier for you to grasp.

1. What Is Income Zakat?

Zakat on salary is a form of zakat imposed on all types of income sources, including earnings obtained from services, employment, and income-generating activities. Income eligible for zakat includes:

• Salary;
• Allowances;
• Bonuses;
• Commissions;
• Emoluments;
• Wages;
• Professional fees;
• All types of income that are not capital-based but rather derived from labor or services rendered;
• Other sources of income such as livestock, agriculture, or rental income.

2. Who Is Obligated to Pay Zakat Income?

Basically, not everyone is obligated to pay this wealth zakat. Wealth zakat, in this case zakat for salary, is only imposed on individuals who are capable or have a certain amount of income as determined by their respective state zakat institutions.

Source: State Islamic Religious Councils

3. Is Zakat on Income Calculated on Net or Gross Income?

In Malaysia, zakat calculation method is done through two methods – by deducting Allowable Expenses (net income) or without deducting any expenses (gross income). You can refer to the zakat payment calculator from respective State Islamic Religious Councils’ websites for more information.

4. How to Calculate Zakat on Salary in Malaysia?

How do you calculate zakat in Malaysia? Generally, there are two methods to calculate zakat on income in order to determine the amount of income zakat to be paid. You can refer to the zakat calculation formula as follows:

i. Zakat Calculation Without Deductions Method

Calculation of zakat income using this method is simpler and easier. You only need to determine your annual income and then multiply it by 2.5 percent of the total income. For more clarity on how to calculate 2.5 percent zakat, refer to the estimated zakat formula as follows:

• • Annual Gross Income x 2.5% = Total income zakat to be paid
  • RM48,000 x 2.5% = RM1,200

Based on the example above, if your annual income is RM48,000 (or RM4,000 per month), the total zakat to be paid is RM1,200 per year.

ii. Zakat Calculation Malaysia After Deductions Method

Calculating income zakat using this method is similar to calculating income tax exemptions. The calculation is based on the net income after deducting certain exemptions.

Zakat Tax Deduction Malaysia Individual

The following are allowable deductions for income zakat in Malaysia:

• • Personal expenses – RM12,000;
  • Wife’s maintenance – deduction of RM5,000 for each wife;
  • Children under 18 years old – deduction of RM2,000 for each child;
  • Children over 18 years old (studying) – deduction of RM5,000 for each child;
  • Contribution support to parents;
  • EPF deductions;
  • Self-education – maximum of RM2,000 per year;
  • Contributions to financial institutions, cooperatives, etc. (paying zakat on behalf of contributors or depositors such as Tabung Haji).

To help you better understand on how to calculate zakat on income, you can refer to the example calculation of income zakat below:

Based on the example above, you only need to pay wealth zakat of RM358 per year or approximately RM29.90 per month. This calculation may vary depending on individual expenditures.

5. When Should Zakat Income Be Paid?

In Malaysia, the process of paying zakat on income must be settled before December 31st each year. This is to qualify for an income tax rebate.

6. What Are the Eligibility Criteria for Zakat on Income?

Basically, salary zakat is used to assist the asnaf group and strengthen the economy of Muslims. In Malaysia, there are several mandatory conditions for income zakat that individuals must meet to qualify for payment:

i. Islam

Zakat is an act of worship that is only prescribed for Muslims. Therefore, the owner of the wealth eligible for Zakat must be a Muslim.

ii. Being Free

Wealth owners must be free from any form of servitude. Scholars still maintain this factor as one of the main conditions for paying zakat, even though the issue of servitude no longer exists in the present time.

iii. Exceeding Nisab Threshold and Meeting the Haul for Income Zakat

The annual income of an eligible individual subject to zakat must exceed the zakat payment threshold (nisab zakat) and meet the defined haul. What does this nisab zakat mean? Nisab is a threshold set to determine whether certain wealth is liable for zakat or not.

For example, the nisab for wealth zakat (income, business, savings, and gold) is 20 mithqal (85 grams of gold). The zakat rate Malaysia for income is 2.5 percent of the gross income or net income.

It’s essential to note that the nisab threshold is subject to change every year and is determined by the zakat institution. The nisab rate is established based on meeting the haul*.

*Haul meaning in Malay: Haul means that a full Islamic or Gregorian year (365 days) or a full lunar year (354 days) has passed over the wealth owned.

iv. Full Ownership of Wealth

Income zakat is not mandatory if the wealth does not have a specific owner or is owned by the public, such as waqf land, baitulmal property, and so on. Individuals subject to zakat must prove that the wealth or income is 100 percent owned by them.

This means that no other individual has any rights to that wealth except for the individual themselves.

v. Wealth with the Potential to Grow

Furthermore, a requirement for paying income zakat is to have wealth that has the potential to grow and provide returns to the owner. Essentially, zakat is only obligatory on wealth that can grow to ensure that paying zakat does not lead to a depletion of wealth, especially if that wealth is the sole source of the owner’s livelihood.

7. How Much Is Zakat Percentage On Salary?

Based on the Special Conference of the Fatwa Committee of the National Council for Islamic Religious Affairs of Malaysia, income zakat is obligatory for individuals who meet the criteria for zakat payment.

The zakat deduction rate in Malaysia is based on the zakat nisab, which is set at 2.5 percent of the annual gross income.

8. How To Pay Zakat Income?

For the payment of income zakat, you can make payments through the official websites of the respective State Islamic Religious Councils. Zakat payments can be made either through monthly or annual deductions from your income. There are several methods you can use to pay your zakat.

• Pay zakat online through the official website of the Zakat Board of each state;
• Make zakat payments through online banking;
• Physical payments can be made at official Zakat Board branches, Post Offices, bank counters, or selected ATMs.
• Authorized zakat agents.

You can also refer to the State Islamic Religious Councils for individuals who want to know the amount of zakat they need to pay.

Monthly Zakat Deduction Scheme (PZB) vs. Monthly Tax Deduction (PCB)

However, some individuals choose to make monthly zakat deductions directly from their salaries. Employers can remit a portion or the entire monthly tax deduction (PCB) to any chosen Zakat Collection Center.

Employers can make adjustments by considering the monthly zakat amount and deducting it from the PCB payment.

How To Pay Zakat On Monthly Salary

You can follow the steps to pay income zakat through salary deductions as follows:

1. 1. 1. Refer to the PZB Scheme schedule or calculate zakat on zakat.com.my
      2. Fill out the Monthly Zakat Deduction Authorization form and submit it to your employer (Salary Division); or
      3. You can also apply for salary deductions online at zakat.com.my

9. Where Should Zakat on Income Be Paid?

In general, it is encouraged to pay zakat in the area where you earn your income. This is because the poor and needy in that area have a greater right to receive zakat from the funds contributed by zakat payers in the same locality.

Zakat Pendapatan: Pay Your Zakat for Blessings and Peace in Life

Paying zakat can help those less fortunate, such as the poor and needy, Muallaf (one who recently embraced Islam), single mothers, orphans, students, and more. Therefore, if you are eligible to pay zakat, don’t forget to fulfill this responsibility and pay your zakat each year.

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