Using a Zakat Calculator for Stocks and Missed Years: What to Enter and Which Method Applies

A zakat calculator gives the right answer for stocks only if you choose the right method. Shares bought to trade are counted at full market value, while long-term holdings can be counted at the company’s zakatable assets or, under Britain’s National Zakat Foundation (NZF) proxy, at 25 percent of market value. Missed years are calculated one by one, using each year’s values.

Reviewed by Hafiz Maqsood Ahmed.

Online calculators from charities and investing apps have made zakat easier to compute, but they handle investments in different ways, and the difference can be large. For a $100,000 long-term portfolio, zakat is $2,500 at full market value but $625 under NZF’s proxy. The positions below are those of named bodies; The Halal Times does not issue rulings. The underlying rules are explained in our guide to zakat.

The three methods for stocks

NZF’s guidance on zakat on stocks and shares says shares bought to resell are zakatable at 2.5 percent of current market value. For long-term holdings, the ideal is 2.5 percent of your share of each company’s zakatable assets, such as cash, receivables and inventory; as a proxy, NZF allows 2.5 percent of 25 percent of market value, or 0.625 percent. Its example: a £10,000 portfolio owes £62.50.

NZF’s proxy comes from an analysis of FTSE 100 companies by Mufti Faraz Adam, Shaykh Abid Khan and Mufti Billal Omarjee, first published in 2018, which found that 66 of the companies had zakatable net assets below 25 percent. NZF says it reviews the figure annually, that an earlier 40 percent proxy no longer applies, and that the proxy is not suitable for private companies or start-ups that hold mostly cash. Other approaches, including the view that long-term shares are zakatable on dividends only, are compared in our explainer on zakat on stocks and shares.

What calculators ask for

Islamic Relief USA’s online calculator asks for cash at home and in bank accounts, the resale value of shares, business stock and profits, gold and silver at current value, investment property and other income, and then subtracts debts and expenses, using a nisab of 85 grams of gold. Musaffa, a Shariah screening company, describes three methods for stocks in its guidance: market value for traders, zakatable assets for long-term investors and, as a minority view, dividends only. Zoya, a halal investing app, imports brokerage holdings to automate the calculation.

Before relying on any calculator, check:

1. Which method it applies to shares, and whether you can choose.
2. Which nisab it uses: gold (85 or 87.48 grams, depending on the body) or silver.
3. Whether it deducts debts, and which ones.
4. Whether it handles retirement accounts and employee equity. For RSUs and options, see our guide to zakat on RSUs, stock options and ESPP shares.

Making up missed years

Missed zakat does not lapse. In its guidance on missed years, NZF says the unpaid amount “has become a debt in one’s liability on the day Zakat was binding,” and that a person should calculate net zakatable assets “on one’s Zakat day for every year missed.”

That means running a calculator once for each missed year, with that year’s figures:

• Use your cash, investments and debts as they stood on that year’s zakat date.
• Value gold at that year’s price, not today’s. NZF’s scholar Mufti Faraz Adam says to “work out how much your gold was worth in the previous years on your Zakat day.”
• Subtract zakat owed for earlier missed years where your school allows debts to reduce wealth.
• Add the yearly amounts and pay the total, in installments if necessary.

A worked example

An investor missed zakat for two years. On the first zakat date, she had $20,000 in cash and $60,000 in long-term index funds; on the second, $25,000 and $70,000. Under NZF’s proxy, year one is 2.5 percent of ($20,000 + $15,000), or $875; year two is 2.5 percent of ($25,000 + $17,500), or $1,062.50. She owes $1,937.50 in total. UK-based readers can also see our guide to calculating zakat in the UK.