How to Calculate Zakat on Income?

Zakat on Income is not a foreign concept to Muslims in Malaysia. However, many are still unclear about how to calculate Zakat on Income, the Zakat rate, eligibility criteria, and more. This article will help you understand the basic aspects of Zakat on Income to make it easier for you.

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3 Main Focuses Regarding Zakat on Income You Need to Know

If you have never paid Zakat on Income before, you may wonder what Zakat on Income is, when to pay it, and who is obligated to pay it. Follow this article to learn more about Zakat on Income in Malaysia.

As you may already know, Zakat payment is the fourth pillar of Islam. Zakat on Income is obligatory and a duty for Muslims (those who are financially capable). In general, there are two types of Zakat you need to know: Zakat Fitrah and Zakat on Wealth – Zakat on Income is one of the types of Zakat on Wealth.

1. Meaning of Zakat on Income

As mentioned above, Zakat on Income is a type of Zakat on Wealth, and it is imposed on all Muslims.

According to the fatwa by the Federal Territories after being decided by the Committee of Consultation on Islamic Law, Zakat on Income refers to mandatory deductions from income. It includes any wages, salaries, allowances, bonuses (Subsection 34(1) of the Islamic Religious Administration (Federal Territories) Act 1993 [Act 505]).

In simple terms, Zakat on Income is imposed on all types of income sources or earnings from any services, employment, and activities that receive payment (earn wages).

2. Ruling of Zakat on Income

Zakat on Income is obligatory for individuals who have income and wages. Based on the Special Muzakarah of the Fatwa Committee of the National Council for Islamic Religious Affairs Malaysia, Zakat on Income is obligatory for eligible individuals to pay.

Eligible Income Subject to Zakat

The following are the types of income that can be subject to Zakat that you should know for reference and guidance:

1. 1. Salary
  2. Allowances
  3. Bonuses
  4. Commissions
  5. Sales
  6. Royalties
  7. Other income such as livestock, agriculture, or rental income.

3. Criteria for Zakat on Income

Although Zakat is primarily used to assist the needy and empower the economy of Muslims in Malaysia, there are several mandatory criteria that an individual must meet before paying Zakat on Income. Here are the five mandatory criteria for giving Zakat on Wealth that must be fulfilled:

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

Being free in this context means being free from any form of servitude. The 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. Meeting the Criteria of Zakat on Income Nisab and Zakat Haul

An individual’s annual income must exceed the specified threshold (nisab) and reach the required haul. This means that if the annual income exceeds the nisab threshold* for Zakat on Income, you are obliged to pay Zakat on Income.

📌 Meaning of Zakat nisab: Nisab is a threshold set to determine whether the wealth is liable for Zakat or not. For example, the nisab for Zakat on Income, business, savings, and gold is 20 mithqal (85 grams of gold). The Zakat payment rate for Income is 2.5 percent of the gross income or net income.

This nisab threshold is determined based on the completion of the zakat haul for income*. It should be noted that the nisab rate constantly changes every year and is determined by the zakat institution. However, financial sources from illicit and doubtful sources such as bribery, gambling, and usury (riba) are not subject to zakat.

📌 Meaning of “haul” in Malay: “Cukup haul” means that one year has passed over the wealth owned, according to the Hijri year calculation (354 days) or the Gregorian year (365 days).

iv. Full Ownership of Wealth

An individual must prove that the wealth or income is 100% owned by them. No one else has a right to that wealth except themselves. The owner has full control over the wealth, and the profits from it are returned to the owner.

This means that zakat is not obligatory if the wealth does not have a specific owner or if it is owned by the public, such as waqf land or public property.

v. Potential for Growth of Wealth

The wealth in question is one that has the potential to grow and provide returns to the owner. Zakat is essentially required on wealth that has the potential for growth to ensure that the payment of zakat does not lead to a decrease in wealth, especially if it is the sole source of livelihood for the owner.

In essence, not all individuals are obligated to pay this zakat. Zakat on Income is only imposed on individuals who are financially capable or have a certain amount of income as determined by the respective state zakat institutions.

Basically, not all individuals are obligated to pay this zakat. Zakat on income is only imposed on individuals who are financially capable or have a certain amount of income as determined by the respective state zakat institutions.

When should you pay zakat on income? Typically, the process of paying zakat on income needs to be settled before 31st December each year to enable you to qualify for income tax exemption rebates.

However, some individuals choose to deduct zakat on a monthly basis through salary deductions. You can fulfill your responsibility to pay zakat on a monthly basis or at the end of the year, depending on your preference.

Payment of Zakat on Income, Calculation Methods of Zakat on Income in Malaysia

Many people are still unaware of the proper method for calculating zakat on income, which may result in inaccurate zakat payments. How do you calculate zakat on income correctly? Follow this article to learn more.

1. How to Calculate Zakat on Income

In general, there are two calculation methods for zakat on income that you need to know. You can refer to the calculation guidelines as follows:

i. Method Without Deductions

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

Gross Annual Income x 2.5% = Zakat on Income 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 zakat amount you are required to pay is RM1,200 per year.

ii. Method with Deductions

Basically, this method of zakat calculation is similar to tax exemptions calculation. The calculation is based on the net income or after deducting certain exemptions.

Here are some types of deductions that can be taken into account for zakat calculation:

Personal basic expenses;
Wife’s maintenance;
Children’s expenses;
Support for parents;
EPF contributions;
Contributions to financial institutions, cooperatives, and others (paying zakat on behalf of contributors or depositors, such as Tabung Haji).

To help you understand better, you can refer to the example calculations in the table below:

	Total
A. Income from All Sources (Per Year) Income from employment and wages – salary, wages, bonuses, overtime pay, pensions, gifts, incentives, etc. Income from self-employment – project profits, commissions, royalties, etc. Income from productive assets – rental income from properties, vehicles, income from livestock products such as milk, eggs, etc.	RM48,000
B. SUBTRACT Allowed Expenses for Zakat Calculation (Per Year) Personal expenses (RM12,000) Wife’s maintenance (RM5,000) Expenses for children under 18 years old (RM2,000) Expenses for children over 18 years old (studying in higher education institution) (RM5,000) Support for parents (RM100 x 12 months) Self-education expenses (RM2,000) EPF deduction of 11% (RM5,280)	RM32,480
Eligible Zakat Income (A – B)	RM15,520
C. Compulsory Payment of Income Zakat RM15,520.00 x 2.5%	RM388.00
D. SUBTRACT Zakat on Annual Contributions to Organizations that Pay Zakat on Behalf of Contributors (Tabung Haji) RM1,200.00 x 2.5%	RM30.00
Total Zakat per Year (C – D) – Net	RM358.00
Total Monthly Zakat Deduction from Salary RM358.00 ÷ 12 months	RM29.90

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

2. Cara Bayar Zakat Pendapatan Secara Online dan Fizikal

Muslims in Malaysia are encouraged to make zakat payments at their respective State Zakat Collection Centers, either on a monthly or annual basis. The zakat funds collected can be distributed to those in need.

In Malaysia, there are several ways you can practice paying your zakat. You can also refer to the respective State Zakat Centers for specific information on payment methods or the amount of zakat to be paid.

1. 1. Pay zakat online through the official website of the State Zakat Board.
  2. Make zakat payments through internet banking.
  3. Pay physically at official branches of the Zakat Board, post offices, bank counters, or selected ATMs.
  4. Pay through appointed official zakat agents.

Fulfill Your Obligation, Pay Your Monthly Income Zakat

It is hoped that this article can help you understand the calculation methods, payment methods, and requirements related to income zakat in Malaysia. Paying zakat is an act of worship that can assist the less fortunate, such as the poor, converts, single mothers, orphans, students, and others. Therefore, if you are eligible to pay zakat, do not forget to fulfill your responsibility and pay your zakat every year!

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