Everything You Need to Know About Zakat in Malaysia

Who has to pay zakat and how does it work? How do you pay zakat and how does the zakat income tax rebate work? Find out the answers to these questions below.

What Is Zakat?

Zakat is an obligation in Islam to make contributions towards the less fortunate. It is one of the five pillars of Islam and is intended to redistribute wealth between the rich and the poor as well as cleanse the wealth of those who pay zakat. There are two types of zakat you should know about: zakat fitrah and zakat harta.

Zakat Fitrah

Zakat fitrah is a small levy that must be paid by all Muslims every year without fail, regardless of age, gender, or wealth. Usually, Muslims settle their zakat fitrah during the holy month of Ramadan as they are obligated to pay it before the start of Eid prayers. The rate for zakat fitrah is equivalent to the value of a bushel of rice weighing 2.7kg. This rate is a remnant from the time when people used to pay their zakat fitrah with actual bags of rice; now Muslims simply pay the equivalent value of the amount.

So, how much is that really in actual Ringgit? Each state declares the zakat rate for the year based on the current price of its local rice, and the amount of zakat fitrah per person usually remains below RM10. However, those who are capable can choose to pay zakat fitrah according to the price of the rice brand they consume in their household, which may be more expensive.

Zakat Harta

You are required to pay zakat harta once a year if you meet the minimum requirements to do so. There are several types or categories of zakat harta, namely:

  • Zakat on earnings
  • Zakat on business
  • Zakat on savings
  • Zakat on gold and silver
  • Zakat on EPF
  • Zakat on farming
  • Zakat on livestock

The most relevant type of zakat harta for most Malaysians would be the zakat on earnings. Muslims who have been employed for more than a year and awarded an income that is above the set minimum amount are obliged to perform their zakat on earnings. The minimum amount, called nisab, is the equivalent of 85g of gold and differs from state to state on a periodical basis. For example, the nisab for zakat harta in the state of Selangor for the period of July to December 2018 was set at RM14,162.

Generally, Muslims who meet the nisab’s requirements are mandated to contribute 2.5% of their income as zakat. Their income includes all types of wages, remuneration, payments, or proceeds obtained from their work such as salaries, bonuses, commissions, royalties, freelance payments, and rental income.

How To Pay For Zakat

Muslims in Malaysia are encouraged to make their zakat payments to the government’s zakat collection centres for proper distribution to the needy. One way you can pay for your zakat is through a monthly salary deduction scheme. In order to avoid a clash with the monthly tax deduction (potongan cukai bulanan) for income tax, employers can make adjustments so that the monthly zakat deduction is taken from the monthly tax deduction.

Here are the other methods through which you can pay for zakat:

  • Online through each state’s official zakat board website
  • Internet banking
  • MYEG
  • In-person at an official zakat board branch
  • Over-the-counter at the post office
  • Selected bank counters or ATMs
  • Official agents.

If in doubt, make sure to check your respective state’s official zakat website for legitimate methods of payment.

Zakat Reliefs And Rebates

Just like you have tax reliefs and rebates when paying income tax, the zakat system also has its own reliefs that allow the payer to make deductions from the amount they have to pay. Referred to as the had kifayah (minimum needs for an individual or family), it again varies from state to state as it is determined by each state’s Islamic religious council.

The type of expenses that can be deducted from your zakat calculations include self, wives, children, parents, EPF deduction, education, and so on.

Zakat As Income Tax Rebate In Malaysia

One perk of making zakat payments is that it acts as a rebate for your annual income taxes. A tax rebate is a reduction in the actual amount of income tax you have to pay – unlike tax reliefs, which merely reduce your chargeable income amount. Furthermore, the cap on the amount of tax rebate you can claim for zakat is subject to the maximum of tax charged.

All this means that zakat payment can help reduce the amount of income tax you pay tremendously. In fact, this rebate can sometimes be enough to reduce your amount of income tax to RM0. Here’s an example. Let’s say after all your tax reliefs and tax deductions, your tax amount comes up to RM450, and the amount of zakat you have paid in the same assessment year is RM500. Since you are allowed to deduct the amount of tax rebate for zakat subject to the maximum of tax charged, your required amount to pay will be reduced to RM0.

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During the holy month of Ramadan, it’s good to remember that zakat isn’t meant to be about rules and calculations, but about being grateful for what you have and fulfilling your obligations towards those who are in need. To find out more about zakat, enquire with respective religious authorities of the state where you are employed. 

0 comments

Agree or disagree with this post? Questions? You also have your word!

  • intan

    when filing for my income tax, I don't see a section to key in for tax rebate. Hope you can help me with this.

    Reply
  • MUSHTAQ AHMAD

    may i ask zakt on EPF saving if the person has enough saving in EPF should the person has to pay on zakat on EPF or only income saving? Also if the same person have enough saving in EPF but other side person is under debt of bank loan/credit card etc so how ?

    2nd question if i have calculated my zakat on wealth/income so zakat fitrah has to deduct from zakat on wealth or differently pay from the balance amount ...please answer me if possible

    Reply
    • RinggitPlus

      Greetings, MUSHTAQ AHMAD

      This situation is a little complex for us to provide a straight answer. However, we can recommend a useful source with regards to Zakat on EPF savings http://www.zakat.com.my/info-zakat/jenis-jenis-zakat/zakat-kwsp/. If you have any uncertainty, you can always contact Pusat Pungutan Zakat (PPZ) for more advice.

      Thanks for the advice and we hope this help.

      Reply
    • SM

      Zakat on savings, simply put, looks at how much you have inside your savings accounts for that Haul. But do we look at the financial obligations such as house mortgage, vehicle loans etc which technically, means that my savings should or could be used to pay off my loans. For e.g., if I have $100K in my savings. But my car loan is $50K, which I chose to pay monthly instead of a lump sum, do I calculate my Zakat based on $100K or $50K?

      Reply
      • RinggitPlus

        Hi, SM

        This question is rather complex as it deals with religion. As such, it is in your interest that you consult Pusat Pungutan Zakat (PPZ) for more information and advice.

        Thanks for the question and we hope this help.

        Reply
      • hi

        what if Im using my saving as my income? (EPF, ASNB) is it zakatable as well?

        Reply
        • RinggitPlus

          Hi, there.

          There are two types of Zakat according to the Pusat Pungutan Zakat: Zakat Fitrah and Zakat harta. In your case, savings, EPF, and ASB are zakatable as they are considered as zakat harta. You can read on http://www.zakat.com.my/info-zakat/jenis-jenis-zakat/zakat-wang-simpanan/ and also contact PPZ for more information.

          Thanks for the question and we hope this helps.

          Reply
        • Anonymous

          Hi, if I'm currently working and staying in another state outside of my home town, which state do I pay my zakat to?

          Reply
        • Morteza Mollanazar

          Hi. I have two questions.
          1) Is the payment of Zakat obligatory in Malaysia currently?
          2) Is the amount of the Zakat payment, decreased from the Tax payable of the Zakat payer?

          Many thanks for your answers in advance.

          Reply
          • RinggitPlus

            Hi, Morteza Mollanazar

            1) Zakat is compulsory for every Muslims in Malaysia.
            2) Zakat payment is decreased from the taxable income of the zakat payer.

            Thanks for the question and we hope this helps.

            Reply
          • YY

            How about sharing the interest distribution in zakat as well?
            Thanks.

            Reply
            • RinggitPlus

              Hi YY,

              We're not sure what you're asking.. Can you reword your question?
              The payment of zakat depends on the price of a portion of staple food in the area it's collected, and has no interest distribution attached to it.

              Reply