Bismihi Ta`ala
*ZAKAAT ON SHARES OF A COMPANY.*
*QUESTION) I would like some information about Zakaat on shares of a company. My mom inherited some shares when she got married. Today’s value of all the shares are about 3 million rupees but the dividend received in a year is very less than Rs 100 000. She uses the dividend for her personal use mostly on medicine & some clothes as dad can’t afford for her expenses. She removes Zakaat only on her money at Bank and on the money received as dividends. She has never removed Zakaat on the shares since around 25 years, always on her money in the bank which is today around Rs 200 000. Does she have to remove Zakaat on the value of the shares too? Does she have to remove 2.5 % on Rs 3 million = Rs 75 000? If yes and if she removes Rs 75 000 each year, nothing will be left in her money (Bank Balance). Then after that, what does she do? Sell the shares to pay Zakaat? What to do now?*
*ANSWER) The science of acquitting Zakaat is based on those assets that is fluidly growing. That is why there would be no Zakaat taxable on land, building, machinery,etc. Whereas stock, cash, good debts, jewellery and so on are all zakaat taxable items.**So same principle will apply in the calculation of shares` Zakaat. The taxable items of the company should minus creditors and loans as at that date.* *This principle applies to an individual as well as collective ownership like companies. Now the shares of your mother represent a specific percentage of ownership in that particular company.* *In calculation of zakaat, one has to read the last balance sheet of the company and earmark the zakaat taxable items. Practically we are looking at current assets of the company: Cash, Bank, Stock, Debtors, etc. We should add all of them. Then the current liabilities mentioned would be subtracted from the current Assets. Technically, we are looking for the NET CURRENT ASSETS available as at that date. The sum of Net Current Assets(Current assets minus current liabilities) is the Zakaat taxable amount for the whole company. So to calculate the zakaat of your mother, take the amount of shares that your mother own in that particular company and divide it by the total amount of shareholders that is listed in the company. The fraction left is the ownership ratio of your mother in that particular company. Take the ratio and multiply it with the Net Current Assets calculated above and you would have the taxable amount for Zakaat. Now the Zakaat would be only 2.5% of that amount per lunar annum. You have noted that there is no Zakaat on the dividend unless the money is banked and found in the closing balance as at year ending or Zakaat date. An approximate calculation of Zakaat for the last 25 years may be rounded up and slowly she may acquit the Zakaat due. Important to know that only volatile ordinary shares dividend are halaal compliant. Fixed preference or ordinary, debentures, bonds and bills are all non shariat compliant. It is because they have a minimum amount of return dividend each year. Only volatile ordinary shares have no fixed returns.* *According to shariah any investment made to yield profit should comply to have a non guaranteed profit yield and also should comply to entertain lost also.**A guaranteed yield is not profit but interest and is haraam. Yes, in a general term business, one should fix percentage of net profit or gross profit. Hence the amount of profit will vary as per business activity.**Feel free to ask question. Because the beloved prophet Swalallahou `Alaihi Wasallam said that ‘’Why didn`t they ask others if they didn`t know. Know that verily, the formula to dispel ignorance is to simply ask a question(to the knowledgeable).’’(Abu Dawood)*
*Know that your Zakaat date is the lunar date that you had nisaab first time after puberty. That lunar date on the following year, you would assess your assets value and minus your debts and creditors as at that date.* *But if you don’t know your exact Zakaat date, then choose a date during Ramadhaan ideally, the 1st Ramadhaan. So as at 1st Ramadhaan, how much money in bank, cash, stock, debtors, value of jewelry summed up minus debts will be your Zakaat calculation amount. Take 2.5% and multiply by this amount is the exact Zakaat due for that year. If you have Net current liabilities or your debts exceed your assets, then there is no Zakaat due on you.**So in your mother’s case, she will calculate 2.5 % of her capital ratio of the Net Current Assets of the company as at her Zakaat date or 1st Ramadhaan and then add this amount to her has money/dividends credited, jewelries etc as at 1st Ramadhaan, then substract her liabilities or debts if any as at that date exactly.**Zakaat is liable on a person personally. So the person has to manage to pay this due personally even if he has to take debt from someone.* *But if during Ramadhaan she has no cash, she may acquit the Zakaat calculated during Ramadhaan that is due on her, give the amount later during the year particularly when dividends are received.* *But a rich son or a rich father can acquit the Zakaat of his subordinates/parents after informing them..*
Mufti Mackoojee
@MuftiMackoojee+23057921333Islam-qna.org