Zakat on goods and merchandise
In the name of Allah, the most Beneficent, the most Merciful.
To give zakat on goods in trade is wajib. However, there are certain specific rules and regulations concerning stock & merchandise. They are:
1) Goods that are purchased with the intention of re-sale are referred to as ‘merchandise’. If one purchased a piece of land, car, house or a property with the intention of reselling it, then Zakat will be obligatory on its current market value.
For example, if Ahmad purchased a house with the intention that, when the opportunity arises I will sell it and accumulate profit. In this case, Zakat will be obligatory on the current market value of the property.
However, if he purchased the property keeping his options open, without making a clear and firm intention. For example, he thought to himself that, if the opportunity arises I will sell it, or give it on rent, or if there is a need, I will reside in it myself, then Zakat will not be obligatory.
Moreover, if he had the intention of personal use but later changed his mind and put it up for sale, even then Zakat will not be obligatory until he does not actually sell the property and receive the money. The reason for this is that, at the time of purchase there was no intention of re-sale. Merely changing the intention (after purchase) will have no affect on the ruling.
2) Zakat is obligatory on the current market value of merchandise. Many people with regards to this make a grave error by calculating Zakat on the buying price of goods. This is incorrect, as Zakat is obligatory on the current market value. For example, if one has a bookshop, then Zakat will be obligatory on the market value of all the stock (books).
However, when calculating Zakat on merchandise, one can keep in mind the total value of all the goods. For example, I have a textile factory in which goods are prepared. Now, I have a wholesale price, a retail price, and a price for selling all my goods at once. When I calculate Zakat, it is permissible that I calculate it according to the third price, which is the value of the goods when selling them all at once, although it is preferable and advisable to calculate Zakat on the normal wholesale price.
3) It is also important to remember that, the market value of goods, which one will take into account, will be of the day of calculating Zakat. For example, Imran purchased an item for £100 and on the day of calculating Zakat, its value was £150. Now, he will have to take out Zakat from £150 and not from £100.
4) There is no Zakat on furniture, which is kept in the factories and shops for personal use (i.e. chairs, tables, etc.). Machines, which are used in factories or in printing presses etc., are not classed as merchandise, thus Zakat is not necessary. Similarly, there is no Zakat on the building or on the cars used for businesses.
However, if the furniture or machines etc… were purchased for selling, then, due to it being an article of trade, Zakat will be obligatory.
5) Zakat will also be obligatory on the goods that are manufactured in factories and mills. It will also be obligatory on goods that are under process of being prepared or are in the form of raw material.
6) If one possesses gold, silver and merchandise, and individually they are not equal to the value of Nisab, then one will have to add them together. If the total value equals or exceeds the value of Nisab, then Zakat will be obligatory.
7) If one has various different types of merchandise, then the total value of all the goods must be calculated.
If a person has invested his money in a business thus became the owner of a proportionate share in the business, then he will have to pay Zakat on the market value of that share. (Simplified Rules of Zakat, Mufti Ibn Adam Al-Kawthari (DB) p.14-16)
All the goods in trade are to be combined along with all the profit earned during the year. If the wealth is equivalent to nisaab and a year has passed over it then zakat has to be given on that amount. (It should be borne in mind that one’s debt should be subtracted from this amount and upon the remaining amount there will be zakat.) (Aapke Masail p.381 v.3)
With regards to your question if a person became a Sahib Nisaab, then the year following that (i.e. on the same date when he became Sahib Nisaab) he has to give zakat on all his wealth that he has with him at that time, regardless, of when he acquired wealth during the course of the year. It may happen that some of the wealth he is giving zakat on, did not remain with him for a full year. (Aapke Masail p.356 v.3)
Only Allah Knows Best
Mohammed Tosir Miah
Darul Ifta Birmingham