How to calculate Zakat on shares and stocks?

The calculation of Zakat differs if shares are held for trading or dividend income. Here is the complete detail.

• Is Zakat applicable on land or rental property?

Shares held for trading

If shares are purchased for trading purposes i.e. with the intention to sell and make a short-term capital gain, the entire market value of the shares is subject to Zakat.

• Share Purchase Price: $100.
• STock Market Price on Zakat Day: $120.
• Zakat will be calculated at $120.
• Zakat Amount: 120 X 2.5% = $3.

Stocks bought for dividend income

If shares are bought for long-term gains (many years) and get dividend income then you will be considered a partner in the company.

It means that you are the owner of each asset and liability of the company in proportionate to the number of shares you own. Therefore, Zakat will be calculated by taking into account the balance sheet of the company with this formula.

• Zakat per Share = (Total Assets – Fixed Assets (PPE) – Total Liabilities) / No. of outstanding shares X 2.5%
• Total Zakat Liability = Zakat per Share X No. of shares you own.

Illustration

• Total Assets: $500 million.
• Fixed Assets: $300 million.
• Total Liabilities: $120 million.
• Total Shares: 5 million.
• Shares Invested: 200 shares.
• Zakat per Share: (500 – 300 – 120) / 5 X 2.5% = $0.4
• Zakat Liability: 200 X 0.4 = $80.

Some people suggest that the Zakat should be calculated on the inventory, stock-in-trade, and cash. However, it does not make any sense without reducing liabilities from it. Therefore, the above formula makes a lot of sense.

What if you cannot calculate?

In case you have invested in several companies individually or through Mutual funds, the above calculation becomes very difficult.

In that case, you can always choose to pay Zakat on the market value of your shares at the rate of 2.5%.

Source: Meezan Bank Zakat Guide