How to Determine Zakat on Business Earnings?

When calculating Zakat for business, all liquid assets are considered liable. 

These include:

• Cash (available funds in hand or bank accounts)
• Finished goods (products ready for sale)
• Work in progress (partially completed products)
• Raw materials (items used in production)
• Accounts receivable (money owed to business that is likely to be received)

Calculating the Zakat Amount for Business

Zakat is based on the wholesale price of inventory or goods for sale. This refers to the price you would charge if someone bought stock in bulk. Paying Zakat on the retail price is optional but considered an act of Ihsan (excellence), as it increases the benefit for others.

Once you have determined total business assets, you must deduct liabilities that are due within the next lunar year. 

These include:

• Outstanding rent, utility bills, and salaries
• Short-term commercial loans
• The next year’s non-interest portion of long-term business debt
• Goods purchased on credit

Zakat for Business Calculation Formula 

1. Business Assets = Cash + Inventory Value + Work in Progress + Raw Materials + Accounts Receivable
2. Business Liabilities = Outstanding expenses + Short-term loans + Next year’s due portion of long-term debt + Credit purchases
3. Zakatable Amount = Business Assets - Business Liabilities
4. Zakat Due = Zakatable Amount × 2.5%

By following this method, you ensure accurate Zakat calculations, fulfilling obligations while maintaining fairness in business finances.

If you wish to make your Zakat truly impactful, consider directing it toward meaningful causes that support the most vulnerable. Organizations that specialize in orphan care are a trusted choice, nurturing children with essential support and emotional security. Pakistan Sweet Home stands as a shining example, working tirelessly to uplift the lives of countless orphans across the country.

And Allah knows best!

Other Zakat Questions You May Have

• Are Non-current Liabilities Deductible in Zakat Calculation?
• Should Tax Liabilities be Deducted from Zakat's Calculation?
• Do Fluctuations in Wealth Impact Zakat's Obligations?
• How to Calculate Zakat Using a Balance Sheet?
• Should Inflation Be Accounted for in Missed Zakat Payments?

• Are Unpaid Student Loans Deductible from Zakat Calculations?