Zakat

Zakat is one of the Five Pillars of Islam. Zakat is the Arabic word for "giving to charity" or "giving to the needy". Zakat is a form of almsgiving, often collected by the Muslim Ummah. It is considered in Islam a religious obligation, and by Quranic ranking, is next after prayer in importance. Eight heads of zakat are mentioned in the Quran.
As one of the Five Pillars of Islam, zakat is a religious duty for all Muslims who meet the necessary criteria of wealth to help the needy. It is a mandatory charitable contribution, often considered to be a tax. The payment and disputes on zakat have played a major role in the history of Islam, notably during the Ridda wars.
Zakat on wealth is based on the disposable income of an individual after fulfilling all their essential needs. It is customarily 2.5% of a Muslim's total disposable income after the necessities of their dependents and themselves, and Muslims who do not hold wealth above a minimum amount known as nisab do not need to pay Zakat, but Islamic scholars differ on how much nisab is and other aspects of zakat. According to Islamic doctrine, the collected amount should be paid to the poor and the needy, Zakat collectors, orphans, widows, those to be freed from slavery, the aged who cannot work to feed themselves, those in debt, in the cause of God and to benefit the stranded traveller.
Today, in most Muslim-majority countries, zakat contributions are voluntary, while in Libya, Malaysia, Pakistan, Saudi Arabia, Sudan and Yemen, zakat is mandated and collected by the state.
Shias, unlike Sunnis, have traditionally regarded zakat as a private action, and they give zakat to imam-sponsored rather than state-sponsored collectors, but it is also obligatory for them.

Etymology

The word Zakat comes from Arabic root z-k-w, meaning to purify. Zakat is considered a way to purify one's income and wealth from sometimes worldly, impure ways of acquisition. According to Sachiko Murata and William Chittick, "Just as ablutions purify the body and salat purifies the soul, so zakat purifies possessions and makes them pleasing to God."

Doctrine

Quran

The Quran discusses charity in many verses, some of which relate to zakat. The word zakat, with the meaning used in Islam now, is found, for example, in suras: 7:156, 9:60, 19:31, 19:55, 21:73, 23:4, 27:3, 30:39, 31:4, and 41:7.
Zakat is found in the early Medinan suras and described as obligatory for Muslims. It is given for the sake of salvation. Muslims believe those who give zakat can expect reward from God in the afterlife, while neglecting to give zakat can result in damnation. Zakat is considered part of the covenant between God and a Muslim.
Verse 2:177 sums up the Quranic view of charity and almsgiving :
According to Yusuf al-Qaradawi, verse 9.5 of the Quran makes zakat one of three prerequisites for pagans to become Muslims: "but if they repent, establish prayers, and practice zakat they are your brethren in faith".
The Quran also lists who should receive the benefits of zakat, discussed in more detail below.
Mention of zakat after prayer suggests that it held a different role than almsgiving. Zakat served as a fine or payment for someone guilty of sin to have Muhammad pray for their purification.

Hadith

Each of the most trusted hadith collections in Islam have a book dedicated to zakat. Sahih Bukharis Book 24, Sahih Muslims Book 12, and Sunan Abu-Dawuds Book 9 discuss various aspects of zakat, including who must pay, how much, when and what. The 2.5% rate is also mentioned in the hadiths.
The hadiths admonish those who do not give the zakat. According to the hadith, refusal to pay or mockery of those who pay zakat is a sign of hypocrisy, and God will not accept the prayers of such people. The sunna also describes God's punishment for those who refuse or fail to pay zakat. On the day of Judgment, those who did not give the zakat will be held accountable and punished.
The hadith contain advice on the state-authorized collection of the zakat. The collectors are required not to take more than what is due, and those who are paying the zakat are asked not to evade payment. The hadith also warn of punishment for those who take zakat when they are not eligible to receive it.

Amount

The amount of zakat to be paid by an individual depends on the amount of money and the type of assets the individual possesses. The Quran does not provide specific guidelines on which types of wealth are taxable under the zakat, nor does it specify percentages to be given. However, it clearly indicates to donate the "surplus" of one's income. But the customary practice in the Islamic world has been that the amount of zakat paid on capital assets is 2.5%. Zakat is additionally payable on agricultural goods, precious metals, minerals, and livestock at a rate varying between 2.5% and 20%, depending on the type of goods.
Zakat is usually payable on assets continuously owned over one lunar year that are in excess of the nisab, a minimum monetary value. However, Islamic scholars have disagreed on this issue. For example, Abu Hanifa did not regard the nisab limit to be a pre-requisite for zakat, in the case of land crops, fruits and minerals. Other differences between Islamic scholars on zakat and nisab are acknowledged as follows by Yusuf al-Qaradawi,

Unlike prayers, we observe that even the ratio, the exemption, the kinds of wealth that are zakatable are subject to differences among scholars. Such differences have serious implications for Muslims at large when it comes to their application of the Islamic obligation of zakat. For example, some scholars consider the wealth of children and insane individuals zakatable, others don't. Some scholars consider all agricultural products zakatable, others restrict zakat to specific kinds only. Some consider debts zakatable, others don't. Similar differences exist for business assets and women's jewelry. Some require certain minimum for zakatability, some don't. etc. The same kind of differences also exist about the disbursement of zakat.
– Shiekh Mahmud Shaltut

Failure to pay

The consequence of failure to pay zakat has been a subject of extensive legal debate in traditional Islamic jurisprudence, particularly when a Muslim is willing to pay zakat but refuses to pay it to a certain group or the state. According to classical jurists, if the collector is unjust in the collection of zakat but just in its distribution, the concealment of property from him is allowed. If, on the other hand, the collector is just in the collection but unjust in the distribution, the concealment of property from him is an obligation. Furthermore, if the zakat is concealed from a just collector because the property owner wanted to pay his zakat to the poor himself, they held that he should not be punished for it. If collection of zakat by force was not possible, use of military force to extract it was seen as justified, as was done by Abu Bakr during the Ridda Wars, on the argument that refusing to submit to just orders is a form of treason. However, Abu Hanifa, the founder of the Hanafi school, disapproved of fighting when the property owners undertake to distribute the zakat to the poor themselves.
Some classical jurists held the view that any Muslim who consciously refuses to pay zakat is an apostate, since the failure to believe that it is a religious duty is a form of unbelief, and should be killed. However, prevailing opinion among classical jurists prescribed sanctions such as fines, imprisonment or corporal punishment. Some classical and contemporary scholars such as Ishaq Ibn Rahwayh and Yusuf al-Qaradawi have stated that the person who fails to pay Zakat should have the payment taken from them, along with half of his wealth. Additionally, those who failed to pay the zakat would face God's punishment in the afterlife on the day of Judgment.
In modern states where zakat payment is compulsory, failure to pay is regulated by state law similarly to tax evasion.

Distribution

According to the Quran's Surah Al-Tawba, there are eight categories of people who qualify to benefit from zakat funds.
Islamic scholars have traditionally interpreted this verse as identifying the following eight categories of Muslim causes to be the proper recipients of zakat:

Those living without means of livelihood, the poor
Those who cannot meet their basic needs, the needy
To zakat collectors
To persuade those sympathetic to or expected to convert to Islam, recent converts to Islam, and potential allies in the cause of Islam
To free from slavery or servitude, slaves of Muslims who have or intend to free from their master by means of a kitabah contract
Those who have incurred overwhelming debts while attempting to satisfy their basic needs, debtors who in pursuit of a worthy goal incurred a debt
Those fighting for a religious cause or a cause of God, or for Jihad in the way of Allah by means of pen, word, or sword, or for Islamic warriors who fight against the unbelievers but are not salaried soldiers.
Wayfarers, stranded travellers, travellers who are traveling with a worthy goal but cannot reach their destination without financial assistance

Zakat should not be given to one's own parents, grandparents, children, grandchildren, spouses or the descendants of Muhammad.
Neither the Quran nor the Hadiths specify the relative division of zakat into the above eight categories. According to the Reliance of the Traveller, the Shafi'i school requires zakat is to be distributed equally among the eight categories of recipients, while the Hanafi school permits zakat to be distributed to all the categories, some of them, or just one of them. Classical schools of Islamic law, including Shafi'i, are unanimous that collectors of zakat are to be paid first, with the balance to be distributed equally amongst the remaining seven categories of recipients, even in cases where one group's need is more demanding.
Muslim scholars disagree whether zakat recipients can include non-Muslims. Islamic scholarship, historically, has taught that only Muslims can be recipients of zakat. In recent times, some state that zakat may be paid to non-Muslims after the needs of Muslims have been met, finding nothing in the Quran or sunna to indicate that zakat should be paid to Muslims only.
Additionally, the zakat funds may be spent on the administration of a centralized zakat collection system. Representatives of the Salafi movement include propagation of Islam and any struggle in righteous cause among permissible ways of spending, while others argue that zakat funds should be spent on social welfare and economic development projects, or science and technology education. Some hold spending them for defense to be permissible if a Muslim country is under attack. Also, it is forbidden to disburse zakat funds into investments instead of being given to one of the above eight categories of recipients.