Zakat on Cash Wealth
In ancient times, people were unfamiliar with cash currency. They engaged in barter trade, exchanging goods for goods. However, as societies evolved, gold and silver began to be used as currency, eventually becoming the foundation of trade and economy.
The Prophet Muhammad (ﷺ) emphasized zakat on gold and silver, as they were the standard forms of wealth. Since physical gold and silver coins were used as currency, the nisab (minimum threshold) was based on their weight.
According to Islamic rulings, the nisab for gold is 20 dinars (equivalent to 87.48 grams of gold), and for silver, it is 200 dirhams (equivalent to 612.36 grams of silver). If a person possesses wealth that meets or exceeds these thresholds, zakat becomes obligatory.
Zakat on Bank Notes
In the modern era, paper currency has replaced gold and silver as the primary medium of exchange. Every country now uses banknotes such as dollars, euros, pounds, rupees, taka, etc., instead of gold and silver coins.
Since modern currency functions identically to gold and silver in economic transactions, zakat on cash is obligatory. The amount of zakat due is based on the value of cash holdings relative to the nisab of gold or silver. If a person holds wealth equivalent to 87.48 grams of gold or 612.36 grams of silver for one lunar year, they must pay 2.5% of their total cash wealth as zakat.
Nisab for Cash Wealth
In today’s financial system, cash money, bank deposits, investments, and digital currencies are all subject to zakat. The nisab (threshold) for cash is determined by comparing its value to the nisab of gold or silver.
The Prophet Muhammad (ﷺ) established a direct relationship between gold, silver, and currency during his time. One dinar was equal to 10 dirhams, and the nisab was set at 20 dinars (gold) or 200 dirhams (silver).
Thus, in modern zakat calculations, the nisab for cash wealth is determined by either:
- The value of 87.48 grams of gold
- The value of 612.36 grams of silver
However, scholars debate whether the nisab should be based on gold's value or silver's value.
Two Scholarly Approaches to Cash Nisab Calculation
1. Gold-Based Nisab Calculation
Some scholars believe gold should be the reference point because it has historically been the more stable standard. This means that if a person owns cash wealth equivalent to the market value of 87.48 grams of gold, zakat becomes obligatory.
However, because gold's value is relatively high, fewer people would qualify for zakat obligation using this standard.
2. Silver-Based Nisab Calculation
Other scholars argue that silver should be used as the nisab standard, as it is a more inclusive approach. Since silver has a lower market value, it allows more people to qualify for zakat obligation, ensuring better wealth distribution among the needy.
Most contemporary scholars recommend using the silver-based nisab because it encourages greater zakat contributions and maximizes charitable impact.
Zakat Calculation on Cash Wealth
Zakat is calculated at 2.5% of a person’s total cash holdings, provided it remains above the nisab for one full lunar year.
Example Calculation
If a person has 80,000 BDT in savings and the nisab threshold is 40,000 BDT, the zakat due is:
- 80,000 × 2.5% = 2,000 BDT
Thus, the individual must pay 2,000 BDT as zakat.
Choosing Between Gold and Silver for Nisab Determination
There are two main perspectives regarding whether the nisab should be calculated based on gold or silver values:
- Using the Silver Nisab Is Preferable
- Silver’s nisab threshold is lower, making zakat applicable to a wider population, leading to greater redistribution of wealth.
- This approach aligns with Islamic teachings that favor generosity and social welfare.
- Determining Nisab in Cash Based on Silver's Value Is Practical
- If nisab is determined based on gold, fewer people will be required to pay zakat, reducing its impact.
- Using silver’s value ensures that more people participate in zakat, which benefits charitable causes and social equity.
Final Considerations
- If a person possesses both gold and cash, they should combine their values to determine nisab eligibility.
- The 2.5% zakat rate applies to all forms of cash wealth, including savings, salaries, investments, and digital assets.
- If a person does not have liquid cash available, they may pay zakat from other assets or set aside money in advance for zakat.
Zakat on cash and currency is a crucial economic and spiritual obligation that purifies wealth and ensures its equitable distribution in society. Whether using gold-based or silver-based nisab calculations, the essential principle remains the same:
Wealth must be shared with those in need, and zakat serves as a means of social justice and economic balance.
By fulfilling this duty, individuals contribute to a compassionate, responsible, and financially ethical society, fulfilling one of Islam's fundamental pillars.