Zakah is payable on trading stock if their market value is equal to or more than the value of nisaab.
Definition of trading assets
Trading assets are those, which are purchased with the intention of resale or capital gain. Consequently, goods that have been purchased for personal use and not for the purpose of trade are not subject to Zakah, irrespective of their value. Similarly, goods (other than gold and silver) originally bought for personal use are not subject to Zakah if the purchaser subsequently intends to sell them for trade and had not intended it at the time of purchase. Once sold, however, their sale price would be subject to Zakah.
Likewise, a person may purchase goods for personal use with the intention that if he is able to obtain a profit thereon, he would sell the goods in which event, no Zakah is payable on such goods. On the other hand, if an asset is not purchased and is owned by some other means e.g. inheritance or gift, then the asset will not become the subject matter of Zakah.
In short, trading assets are those that are:
If any of these two conditions is missing, the asset will not be treated as a trading one and thus will not be subjected to Zakah.
Following are some situations relating to Zakah on trading assets:
• Nisaab of trading assets is same as that of cash i.e. if the value of the assets reaches the value of 87.48 gm of gold or 612.36 gm of silver, then Zakah is obligatory after the completion of year.
• If a person has a house that is leased, the value of the house will not be subject matter of Zakah, as leasing a property does not render it a trading asset. However, the rentals received will be the subject matter of Zakah.
• Since the machines in the industries are not trading assets, therefore no Zakah is obligatory on them. However, if they are purchased with the intention of resale, then Zakah will be obligatory.
• The products manufactured in an industry, as well as the raw material, are subject matter of Zakah.
• If a person has some trading assets that do not reach nisaab, and then if he has some other zakatable assets such as gold, silver and cash, and the combined value of all zakatable assets reaches the value of 612.36 gm of silver, then Zakah is obligatory.
• It is permissible for the Zakah payer to estimate a bulk price of the trading assets i.e. the market value of the stock–in-trade if sold in bulk at the end of the Zakah year, for purposes of calculating Zakah.
Zakah on Shares
If shares are purchased with the express intention for resale or capital gain, then the entire value of the shares is subject to Zakah.
If, however, the shares are purchased with a view to holding them as an investment and receiving the dividend income, then the following must be borne in mind.
Ownership of a company’s shares confers undivided ownership in the underlying assets of the company. The holder is a proportionate owner of the business. All business assets can be classified into two types for the purpose of Zakah.
1. Fixed Assets e.g. Machinery, buildings, Furniture etc.
2. Current Assets e.g. cash, stock in trade, receivables etc.
Fixed assets are exempt from zakah whereas, current assets are subject to it. The owner of the shares can deduct from the Zakatable value a proportion equivalent to that of the liabilities and the fixed assets of the company. In other words, it is permissible for the owner of the shares in this case that he does not take into account the liabilities and non-zakatable assets such as plant and machinery etc. The way to ascertain the proportion of zakatable assets to non-zakatable assets of a company is to consult the balance sheet and profit and loss account. These documents are available as part of the company’s annual report.
Zakah Payable (Z.P) = [Total Assets (T.A) MINUS Fixed Assets (F.A) MINUS Total Liabilities (L)] DIVIDED BY Total No. of Shares outstanding (S.O) MULTIPLIED BY 2.5%.i.e.
Z.P = (T.A – F.A – L) x 2.5S.O 100
The above mentioned detail is for the one who has the ability and resources to ascertain the exact amount of zakatable assets represented by the shares. However, if the calculation gets complicated for somebody, then he should consider the entire value of the shares as his zakatable asset and thus pay Zakah for it.