Zakat & Tax Planning
What this domain tests
This domain tests zakat computation, nisab, haul, zakatable assets, liabilities, and the interaction between zakat and tax relief or rebate.
Core rules
- Zakat is due on qualifying wealth at 2.5% after a lunar haul (one Hijri year) and upon reaching nisab. Nisab is commonly based on 85 grams of gold or 595 grams of silver; silver is often used because it is lower.
- Zakatable assets include cash and bank balances, gold and silver, business inventory at market value, receivables expected to be collected, and trading shares. Personal residence and personal-use vehicles are generally not zakatable.
- Short-term liabilities and debts due may be deducted; long-term personal liabilities are treated more cautiously. Do not deduct the full value of a long-term home loan without a defensible basis.
- Zakat is not the same as tax. In Malaysia, zakat paid may be a tax rebate against tax payable, while tax relief reduces chargeable income. The planner must not double count.
Worked example
A client has RM50,000 cash, RM100,000 business inventory at market value, RM30,000 collectible receivables and RM20,000 trade payables. Net zakatable business wealth is RM160,000. Assuming nisab is met and the haul is complete, zakat is 2.5% × RM160,000 = RM4,000. The planner records the zakat payment and checks whether a tax rebate is available, rather than claiming it as a tax deduction.
Traps
Using the solar year; deducting all long-term debt; zakat on salary before it becomes savings; confusing rebate with relief; and ignoring zakat on business inventory or shares.