Zakat on Stocks: A Complete Calculation Guide

Paying zakat on investment portfolios is an obligation many Muslim investors are uncertain about. The rules differ from zakat on cash savings and require understanding what portion of your holdings is zakatable.

Are Stocks Subject to Zakat?

Yes, stocks held as investments are subject to zakat, provided your total zakatable wealth exceeds the nisab and has been held for a full lunar year. This is the majority scholarly position supported by contemporary Islamic finance bodies.

Two Main Approaches

The Company Analysis Method looks at the zakatable assets within each company you own. You calculate zakat as 2.5% of your proportional share of the company's zakatable assets, including cash, receivables, and inventory. The Market Value Method simply calculates 2.5% of the current market value of your entire portfolio. Most scholars accept this simpler approach for ordinary investors.

Calculating the Nisab

The nisab is equivalent to 85 grams of gold or 595 grams of silver. With gold priced around $90 per gram, the nisab is approximately $7,650. If your total zakatable wealth exceeds this threshold on your zakat date, zakat is due.

Long-Term vs Active Portfolios

If you hold stocks for dividends and long-term appreciation, calculate zakat on the portfolio value. If you actively trade stocks as a commercial activity, treat your holdings like inventory and pay zakat on the market value annually.

Practical Steps

Choose a consistent annual date, often Ramadan, to calculate your zakat. Add up your stock portfolio value, cash, gold, and other zakatable assets. Subtract any immediate debts. If above nisab, pay 2.5%. Consider setting aside a small monthly amount so the payment is not burdensome when due.