Personal Finance Term
Zakat
An obligatory annual charitable contribution in Islam, paid by eligible Muslims on qualifying wealth above a threshold. In Malaysia, zakat paid to an approved body is rebated directly against income tax.
Zakat is one of the five pillars of Islam, calculated as a set portion (commonly 2.5%) of qualifying wealth — savings, gold, investments, and business assets — once it exceeds the nisab threshold and has been held for a full lunar year. The most common forms are zakat on income/wealth and zakat fitrah paid before Eid. It is collected by the state Islamic religious authorities, such as the various state zakat boards, who distribute it to the eight categories of eligible recipients.
What makes zakat distinctive in the Malaysian tax system is the rebate: zakat paid to an approved authority is deducted ringgit-for-ringgit from your income tax payable, not merely from your taxable income. For many Muslim taxpayers this means paying zakat substantially reduces or wipes out their income tax, effectively letting them direct part of what would have been tax toward religious obligation. Keep the official zakat receipt to claim the rebate in e-Filing.