A comprehensive guide to understanding Zakat calculation on gold and its Shariah standards

Zakat is one of the five pillars of Islam, a financial and spiritual obligation imposed by Allah Almighty on Muslims. Allah the Almighty said: ﴿Establish prayer, give zakat, and obey the Messenger that you may receive mercy﴾, indicating its great status in religion. While many rely on gold as a safe haven against inflation and financial crises, there is an increasing need for a clear understanding of zakat rulings on it. This guide explains how to calculate gold zakat, the conditions required, and the eligible categories.

Conditions for the Obligation of Gold Zakat

Gold zakat becomes obligatory on a Muslim when several essential conditions are met:

First condition: Reaching the Nisab (threshold)

The Nisab represents the minimum amount of gold wealth that, if owned by a Muslim, makes zakat due. The Prophet ﷺ said: “There is no zakat on gold until you have twenty dinars, and if you have twenty dinars and a year passes over it, then in it is half a dinar.” Jurists have specified the value of twenty dinars as approximately 85 grams of pure 24-karat gold.

Second condition: Passing the lunar year (Hawl)

This means a full Islamic year has passed since owning the Nisab. If a person owns the Nisab today, zakat is due after a full lunar year from the date of ownership. If new gold is purchased, zakat is not obligatory until a year has passed since the purchase.

Third condition: Complete ownership

The gold must be fully owned, with no debts or legal restrictions limiting disposal.

Categories of Gold and Their Different Zakat Rules

Islamic law distinguishes between several types of gold based on use and purpose:

1- Gold intended for trade and investment

If the gold is in the form of (bullion, coins, exchange-traded funds (ETFs) ) prepared for sale or capital increase, then zakat is obligatory by consensus. Imam Nawawi said: jewelry not used but kept for savings requires zakat. Similarly, if a woman changes her intention from adornment to investment and trade, zakat becomes due after a full year from the time of the intention change.

2- Jewelry used for daily adornment

Scholars differ on this type: The majority (Malikis, Shafi’is, Hanbalis) believe that jewelry purchased for daily use and adornment, such as rings, bracelets, and necklaces, is not subject to zakat, considering it like clothing. The Hanafi school, however, states zakat is obligatory on all gold, even if used for adornment, citing a hadith in Sunan Abu Dawood. A third opinion among some Malikis suggests zakat is due only once.

3- Gold worn by men

Islam forbade men from wearing gold jewelry, as the Prophet ﷺ said: “Indeed, these two are forbidden for the males of my Ummah” ( referring to gold and silk). However, this prohibition does not exempt them from zakat on whatever gold they own, regardless of its form.

Calculating the Nisab of Gold According to Different Purities

The Nisab varies with the purity of gold, as the percentage of pure gold changes:

The Basic Formula for Calculating Zakat

The unified formula for calculating zakat on gold is simple and clear:

Zakat = 2.5% × Market value of pure gold

To calculate zakat on any gold type, first determine the actual pure gold amount by multiplying the total weight by the purity percentage, then multiply the result by the price per gram of that purity, and finally apply 2.5%.

Practical Examples of Zakat Calculation

Example 1: 24-karat gold

Owning 100 grams of 24-karat gold, with a market price of 400 SAR per gram.

• Pure gold: 100 × 1 = 100 grams
• Total value: 100 × 400 = 40,000 SAR
• Zakat due: 40,000 × 2.5% = 1,000 SAR

Example 2: 21-karat gold

Owning 100 grams of 21-karat gold, price per gram 400 SAR.

• Pure gold: 100 × 0.875 = 87.5 grams
• Total value: 87.5 × 400 = 35,000 SAR
• Zakat due: 35,000 × 2.5% = 875 SAR

Example 3: 18-karat gold

Owning 100 grams of 18-karat gold, price per gram 400 SAR.

• Pure gold: 100 × 0.75 = 75 grams
• Total value: 75 × 400 = 30,000 SAR
• Zakat due: 30,000 × 2.5% = 750 SAR

Note: In the last example, the pure gold amount does not reach the Nisab of 85 grams (so zakat is not due in this case).

Eligible Categories for Gold Zakat

The Quran specifies eight categories eligible for zakat: ﴿Zakat expenditures are only for the poor, the needy, those employed to collect (zakat), those whose hearts are to be reconciled, to free captives, those in debt, in the cause of Allah, and for the traveler﴾.

The Poor: Those who lack sufficient basic needs.

The Needy: Those who have some but insufficient resources.

Zakat Collectors: Officials responsible for collecting and distributing zakat.

Reconciliation of Hearts: Those given money to strengthen faith or gain their affection for Islam.

For freeing slaves: Assisting those in debt to buy their freedom.

Debtors: Those burdened with legitimate debts.

In the cause of Allah: Spending on what benefits Islam and the Muslim community.

The wayfarer: The stranded traveler without resources.

Those Who Do Not Deserve Zakat

There are specific groups whom zakat cannot be given to:

• The Prophet’s family (Ahl al-Bayt) and Banu Hashim: The Prophet ﷺ said: “Indeed, these charities are only filth from people.”
• Able-bodied but lazy workers: Not paid to those capable of earning but neglecting it.
• The wealthy: The Prophet ﷺ said: “Zakat is not permissible for the rich.”
• Kafir (disbelievers): By consensus, as zakat is an act of worship exclusive to the Muslim community.
• Those whose expenses are obligatory upon the payer: Parents, grandparents, spouses, and children.

Zakat on Non-Material Gold Investments

With financial market development, new gold investment forms require specific zakat treatment:

Gold-backed ETFs: Treated as direct ownership of gold, zakat is due at 2.5% of their market value upon Hawl.

Mining company shares: Zakat depends on the intention; if for trading, zakat is on market value; if for long-term investment, zakat is only on profits.

Investment profits: The full gold value at Hawl is assessed at market price, profits added, and zakat at 2.5% is paid if Nisab is reached.

Rules and Prohibitions for Applying Zakat

Islamic law lists several controls governing the payment of gold zakat:

• No delay without excuse: It must be paid immediately upon due.
• Adherence to legitimate categories: It should be spent only on the eight eligible categories.
• Not deducted from old debts: It is paid from new wealth.
• Avoiding showing off (Riya): It should be paid solely for Allah’s sake.
• Honest assessment of Nisab: The Nisab estimate must be truthful.
• Not paid from unlawful wealth: The gold’s origin must be lawful.

The Importance of Paying Gold Zakat

The importance of zakat extends beyond being a religious obligation; it has practical and social benefits:

Zakat purifies wealth and increases barakah (blessing) in it, cultivating generosity and charity among Muslims. It helps reduce social disparities by redistributing wealth from the rich to the poor. It also strengthens social bonds within the Muslim community and makes investments more blessed through obedience to Allah and social solidarity.

Frequently Asked Questions about Gold Zakat

Q: What is the Nisab of gold on which zakat is due?

A: The Nisab is 85 grams of pure 24-karat gold. For 21-karat, about 97 grams; for 18-karat, about 113 grams.

Q: Is zakat obligatory on gold used for daily adornment?

A: Scholars differ; the majority believe it is not obligatory, while Hanafi scholars say it is.

Q: What is the zakat rate on gold?

A: The standard rate is 2.5% of the market value of the pure gold.

Q: Is zakat payable on non-material gold investments?

A: Yes, zakat is due on ETFs and gold investments, but calculation methods vary based on the type and intention.

Q: When is the zakat due on gold?

A: When the Nisab is reached and a full lunar year has passed since ownership.

Q: Can zakat be paid in cash instead of gold?

A: Yes, it can be paid equivalent to the gold’s market value at the time of payment.