For verification of this paper, please visit on http://www.socialresearchfoundation.com/anthology.php#8

The various literature and studies has been reviewed, which are discussed through out the paper.

Purpose of Zakat

Under Islam the Zakat is paid to purify the other earning of people. It is a religious obligation to pay needy people a portion of their earnings. However, not everyone is under compulsion to pay the Zakat, instead of only those Muslims who meet certain necessary criteria of wealth. There are following purposes of giving Zakat[6] -

1. Spiritual Fulfilment: There are five pillars of Islam for establishing and strengthening their connection with Allah and Zakat is one of them. Therefore, by giving zakat, one can seek spiritual and mental peace and a sense of contentment. It is also a medium for purifying wealth.
2. Acknowledgement and Humbleness- by giving Zakat to needy people, the giver expresses a kind of thankfulness to Allah for his prosperity and wealth. This instills humility in him and prevents arrogance associated with material wealth.
3. Wealth Purification symbolizes the purification of wealth and acknowledges Allah’s blessings. It also creates a sense of accountability that all wealth and material success belong to the Allah. By giving Zakat, a person detaches himself from material success and desires the world.
4. Equality and Social Justice: Zakat works as an instrument of social change. This discourages the centralization of wealth in only a few persons. It redistributes wealth among the needy. The wealth or amount collected through Zakat is used in education, sanitation, and public health. Thus, it also fixes on the accountability of wealthy people to maintain other poor and impoverished people, as they are also the disciple of God (Allah).
5. Increased community bonding–Zakat also creates a sense of belongingness in the Muslim community, as the rich and poor both feel connected with each other. It narrows the gap between the poor and rich. This fosters mutual support and unity among Muslim communities.
6. Alleviation of Guilt and Psychological Well-being–Research suggests that giving zakat and other forms of charitable work alleviates any feeling of guilt related to the accumulation and abundance of wealth. Thus, it instills a sense of contentment among the individual that he has done something good by helping others and positively impacts a person’s mental psychological wellbeing.

Types of Zakat

There are two types of  Jakat:  

1. Jakat Fitr:- this is the simplest form of the two types of the zakat system and it is personal voluntarily alms giving at the end of the month holy Ramadan. It also represents one day’s fast, which means one should pay Zakat Fitr at least one’s in a lunar year in equal amounts to what he spends in one day. However, modern Muslims can pay for cash instead of food.[7]
2. Money and commodities serve as the basis for determining zakat payments, which include daily sustenance for zakat Fitr and productive assets for zakat Maal. The amount of zakat Fitr varies depending on the location and time. Generally, payments are made in cash, equivalent to 2.5 kilograms of local staple food such as rice, wheat, lentils, or corn.[8]
3. Zakat Maal:- The second religious obligation for Muslims involves giving through zakat Maal, which translates to “wealth” in Arabic. This is a specific tax on accumulated wealth that has been held for at least one year. The standard rate for this tax is 2.5% for productive assets, but crops have different rates, depending on whether they are irrigated. Irrigated crops pay 5% on harvest, whereas non-irrigated crops pay 10%. Once an individual's personal property exceeds certain annual exemptions, zakat Maal is levied on excess wealth at prescribed rates after accounting for the necessary expenses.[9]

Other concepts of voluntary giving under Islam:

1. Infaq: The word ‘Infaq’ derived from the Arabic word which means spending. Thus, it is a form of charity and is given by the donor without the expectation of a reward or return. Infaq is given for the betterment of society and at the same time for the betterment of the family and to please God. As it is said by giving Infaq, one does not lose property or wealth because it returns to the donor by the Grace of God.[10]
2. However, by some scholars the word ‘Infaq’ interchangeably used with the word ‘Zakat’ and treated as the same. In Infaq, the monetary benefit is given by the donor directly to the needy people without the help of any intermediary. Institutions engaged in promoting social welfare, education, and the propagation of Islamic religion can also be given. The donor always encourages the disbursement of Infaq on their regular as well as non-regular income.[11]
3. Shadaqa: Shadaqa-like zakat is also a voluntary act of generosity and philanthropy. The word ‘Shadaqa’ originates from the word Sidq which literal meaning is truth. However, unlike Zakat, it is not obligatory for followers of Islam to pay for it. The amount was also not fixed or specified. Shadaqa can be donated at any time and there is no specified time period, and it can also be in any form such that it can be an act of service, imparting knowledge in Islam, or propagating the Islamic Religion.[12]  
4. Shadaqa can be provided to both Muslims and non-Muslims. According to the Quran, Shadaqa has a wide meaning and can be in any form of voluntary service. However, in the Quran, Tawba 90 uses the terms Shadaqa and Zakat interchangeably. However, there is one clear distinction between the Shadaqa and Zakat: Zakat is obligatory on Muslims and can be donated only to Muslims, whereas the Shadaqa is not obligatory to Muslims, and if anyone wants to give it, he can give it to anyone whether the donee is Muslim or non-Muslim.[13]
5. Qurban: Here, I will use the word Qurbani, which means sacrifice. In the Dhul Hijjah month of every year, an animal is slaughtered, such as a sheep, goat, or camel around the word. The purpose is to reflect the devotion of Allah. It is also considered a form of service to the poor and the needy under Islam, because at least one-third of the meat from the animal must be distributed among the poor and vulnerable Muslim communities,[14]

According to Ali, qurban is a specific form of Shadaqa, where meat from slaughtered animals is primarily distributed among those who are less fortunate. This practice is conducted annually during the Hajj month, which is a pilgrimage. Urban cuisine typically incorporates goat or camel meat. The term "qurban" originally referred to a Muslim's contribution to a portion of their wealth to help those in need within society. The name "qurban" originates from the story of Abraham, who was instructed by God to sacrifice his son Ishmael as a demonstration of his love for him. Muslims are encouraged to slaughter animals suitable for consumption at least once in their lifetime.[15]

Historical Perspective Of Zakat

Zakat in Quran:

As we have already discussed in this paper, Zakat is one of the five pilers under Islam and is obligatory to every individual who qualifies for certain criteria. Zakat is also mentioned in many places in the Quran. In Surah al Baqarah, verse 110, “And perform as salat, and give zakat, and whatever of good you send forth for yourselves before you, you shall find it with Allah. Certainly, Allah is All Seer of what you do”. In Surah An Nur, verse 56, “And established payer and give Zakat and obey the Messenger that you may receive mercy”.[16]

Thus, Allah has given it a type of right to poor people to claim it from the rich and affluent section of society. On some verses, the Prophet mentioned that the purpose of Zakat is to reduce poverty and help those in disadvantageous positions in the community.[17]

Zakat is the most important part of the Islam which perpetuate the practice of giving. Zakat is mentioned 30 times in the Quran of which English translation means ‘alms giving’.[18] The word Zakat is mentioned in Quranic verses, which appreciates the giving away of surplus wealth and other material resources to needy people; by doing this, Allah will be happy and will provide his blessings. In most countries, it is treated as the mandatory obligation of Muslims to contribute to society by giving the Zakat, while in some countries it is treated as a form of tax collected for public services. Due to these qualities, we can also say that Zakat has a dualistic character.[19]

Here, we study Zakat in Indian context. However, we will also deal with other countries to explore the historical context of the Zakat System.

Zakat, regarded as one of Islam's five pillars, has historically played a pivotal role in Islamic social welfare. However, its practice began to decline in the 18th century and only recently has it seen a resurgence. In the last 50 years, Muslim governments in countries such as Pakistan, Malaysia, Saudi Arabia, and Kuwait have incorporated zakat more firmly into their official social welfare structures. In 1968, Indonesia's non-Islamic government established Badan Amil Zakat (BAZ), further solidifying its practice. Despite this, zakat remains in Indonesia through both public and private methods.[20]

In Islamic nations, the Zakat system, which involves distributing alms, has been codified as a result of changes in political institutions. Born in 570 AD, Mohammed's first supernatural revelation came to him on a hill near Mecca. His career as a prophet began with the incident. His early disciples created the first community of believers and soon attracted them. However, as Mohammed's message spread, the political hostilities between his adherents and the Qoraish—Mecca's main merchant tribe—grew more intensely. As a result, the first Muslim congregation moved to Medina, a nearby city, in 622 AD under the leadership of Mohammed. Mohammed founded the first Islamic state there, which acted as a template for other Islamic nations.[21]

Zakat has also promoted heterogeneous Islamic charity by connecting different communities across the world and, more specifically, among Muslim majority countries.

Zakat Regulation In Muslim Countries And In India

In various Islamic countries today, Zakat has been mandatorily regulated and its tax bases and social welfare schemes have been legally established for administrative purposes. Yemen, Saudi Arabia, Libya, Sudan, Malaysia and Pakistan are some of these countries. For example, the Muslim nation of Malaysia accepts and acknowledges the significance of Zakah or zakat in relation to its administration obligations. Nonetheless, even though enforcing laws on Zakat is like a herculean task it’s still basically a voluntary payment.[22] Zakat practice in Malaysia involves a tax rebate system that stands out as well. It can be used as tax rebates by making payments to zakat institutions or organizations located in different states. However, failure to comply with Zakat regulations may lead to penalties being charged. Nevertheless, this has not deterred the Malaysian collections of zakat which registered annual increases though still remain low hence unsatisfactory. This is partly due to the variation in law enforcement across states because of the belief that collection is more at state than federal level.[23]

General Authority of Zakat & Tax (GAZT) oversees the collection of Zakat in Saudi Arabia. The Gulf Cooperation Council (GCC) countries require sole traders and firms to pay zakat on their profits including portions.

Administration And Management Of Zakat In India

It is very sad reality that in India there is not any centralised agency or the department for managing the Zakat. Although we have many laws for managing the affairs of the trusts and non-profit companies constituted for the purposes Zakat collection and disbursement. Thus, there is no law directly governing Zakat but yes there are laws which govern the bodies which collect Zakat and disburse it among the needy people. These foundations and trusts are governed by the trusts Act 1882, societies Registration Act, 1860, Companies Act, 2013, Income Tax Act, 1961, Foreign Contribution (Regulation) Act, 2010, the Charitable and Religious Trust Act, 1920 and other Sharia and Islamic Customary Laws governed the collection and distribution of the Zakat among the Muslim population of India.

There are many foundation and non-profit organisations and non-governmental organisation which collect Zakat and the persons who give Zakat to these organisations get tax rabat under the Income Tax Act, 1961 under Section 80G.[24] Section 12 and 12A of the Income Tax Act, 1961 governs registration and tax exemption of charitable and religious organization.[25] It is mandatory to any religious organization or charitable trust to register it under section 12A of the Income Tax Act. Section 12 of the Income Tax Act provide exemption to the donor which he voluntary contributed to any charitable or religious organization.

Besides this there is also amendment has been made in Finance Act 2022 which proposes to amend section 12A of the Income tax Act to make it mandatory to maintain audit and accounts report whose exemption limit exceeds 2.5 lakh. And this should be maintained in accordance with the Income Tax rules.[26]

The charitable trusts whether religious or non-religious must register under the Foreign Contribution (Regulation) Act, 2010 and comply all the provisions of this Act. The FCRA Act mandates that the Zakat organization must register itself and comply with these rules and regulations. The fund collected through Zakat must be utilized for the purpose stated during the registration which generally includes charitable religious and social activities. The organization must report the receipt and utilization of its fund to the Ministry of Home Affairs and ensure transparency and accountability.[27]

Challenges in Zakat Regulation in India: There is no legal framework and infrastructure to manage Zakat system  in India. People widely consider the payment of Zakat as an act of worship and it is completely voluntary. The payment of Zakat is widely regarded as an act of worship, and it is entirely voluntary. The government does not have any involvement in the management of Zakat. Religious institutions obtain a considerable share of individual Zakat contributions.

1. Legal and regulatory challenges: In India, there are no defined methods for the collection and distribution of zakat. In India, private organisations and charitable trusts primarily manage zakat, in contrast to some Islamic countries where state institutions regulate it. Without a centralised authority managing zakat collection and distribution, both donors and recipients might find themselves uncertain regarding the calculation and application of zakat funds. This decentralised approach highlights the significance of clear guidelines and standardisation to foster transparency, consistency, and accountability.
2. Low awareness and comprehension: Many Muslims in India possess a restricted understanding of Zakat, particularly regarding its accurate calculation, the identification of eligible recipients, and the fulfilment of the related religious obligations. A deficiency in comprehension may result in minimal engagement in Zakat contributions and ineffective administration of Zakat resources. When individuals perceive that their Zakat contributions are not being utilised effectively for the benefit of the community, they tend to lose interest in donating Zakat. Therefore, to instil their faith, we make the zakat collection system transparent. Besides this, we also make a priority list so that we can determine who should get first the Zakat fund.
3. Economic challenges: Many zakat organizations don’t possess adequate resources, and because of this, they are not able to function properly. Smaller organizations struggle more due to limited resources. Therefore, we need to implement effective administrative practices so that funds can be utilized and can be reached to a large number of needy people. Also, many people show indifferent behaviour towards the poor, and they don’t actively support zakat compliance behaviour. Often, the necessary amount for zakat cannot be gathered, and it is important to consider the financial circumstances of those contributing zakat. Their financial capacity should be taken into account during the collection process as well.
4. Technological challenges: Lack of funds prevents many firms from adopting new digital technologies. The government must address donor and recipient digital literacy as well as system integration. Zakat institutions in India get less attention when adopting new technologies for their everyday operations than in other Muslim countries. Zakat administration in India is lacking in infrastructure and law. Paying zakat is voluntary and considered prayer by many. The government does not manage zakat. Individual zakat contributions go mostly to religious entities. In many developing countries, poverty is widespread; however, in the majority of Muslim nations, the responsibility for collecting and distributing zakat funds lies with religious authorities.
5. Legal and regulatory challenges: There is no specific legislation that regulates the collection and distribution of zakat in India. In India, private organisations and charitable trusts primarily manage zakat, in contrast to some Islamic countries where state institutions regulate it. Because there isn't a law system in place, different companies might have different zakat practices. If there isn't a single group in charge of collecting and giving out zakat, givers and receivers might not be able to figure out how it works. With clear standards, this spread-out method stresses continuity, openness, accountability, and uniformity.
6. Low awareness and comprehension: A significant number of Muslims in India possess a limited understanding of Zakat, particularly regarding its correct calculation, the identification of eligible recipients, and the fulfilment of the related religious obligations. A deficiency in comprehension may result in minimal engagement in Zakat contributions and ineffective administration of Zakat resources. When individuals perceive that their Zakat contributions are not being utilised effectively for the benefit of the community, they tend to lose interest in donating Zakat. To build their trust, we ensure the Zakat collection system is transparent. Additionally, we establish a priority list to identify those who should be allocated the Zakat funds.
7. Economic challenges: Many zakat organisations don’t possess adequate resources, and because of this, they are not able to function properly. Smaller organisations struggle more due to limited resources. Therefore, we need to implement effective administrative practices so that funds can be utilised and can be reached to a large number of needy people. Also, many people show indifferent behaviour towards the poor, and they don’t actively support zakat compliance behaviour.
8. Technological challenges: The mosque authorities gave special ATM cards to the beneficiaries so that they could get rice from them. There is a well-known adage that time is valuable, so it is necessary to have a convenient mechanism for paying zakat within a limited time frame. People suggest that India could also embrace this convenient method of paying Zakat. For example, in Malesia, ATMs have been installed in mosques, and it greatly helps the needy people, as those who wanted it will get it at the mosques. The mosque authorities gave special ATM cards to the beneficiaries so that they could get rice from them.

Recommendations

As we have already discussed, Zakat is a religious practice of almsgiving to the poor or needy members of Islam's society. While Zakat is a mandatory practice in Islam, its implementation varies across different countries. While there is some regulation in Muslim-majority countries, the regulation of Zakat is largely informal and decentralized in India, where Muslims constitute a significant minority group. This lack of formal regulation often leads to inefficiencies and inequalities in the distribution of Zakat funds.

To improve Zakat regulation in India, we have to overhaul the existing system of zakat collection. Legislative, administrative, and community levels should undergo this overhaul to ensure transparent, efficient, and impactful zakat collection and administration. Here are some key recommendations that I would like to highlight:

1. Changes at the legislative level: Central Zakat Authority: India should establish a central zakat authority that will oversee the administration of zakat collection; at the same time, it will also make rules and regulations for it and will also address grievances related to zakat.
2. A transparent and efficient distribution system: Conduct assessments and identify priority areas; a monthly and yearly assessment system is necessary to pinpoint the areas where funds are most effectively utilized. It will help to identify priority areas that require additional development, such as healthcare system education gaps and other areas where Zakat can make a significant impact.
3. There should be a central authority that will collaborate with local authorities and NGOs to gather data on poverty levels, healthcare needs, and other areas.Monitoring and Evaluation: The Central Authority, like the Central Zakat Authority, should monitor the collection and distribution of the Zakat funds and will conduct regular audits. The Central Authority should also inform donors about the utilization of their funds. This will create trust and encourage more people to contribute.
4. Community Involvement and Awareness: Education and Outreach Programs: To enhance the Zakat donation rate, the Zakat organization, in collaboration with the government, must educate individuals about the Zakat donation and its impact on the poor. They should organize educational programs, workshops, and seminars at different centers, such as mosques and madrasas.
5. Encouraging Community-Based Zakat Funds: To address local community needs, local Zakat funds should exist, providing assistance to those in need with minimal procedural hurdles. While centralization is good, to solve local problems at the ground level, there should be local Zakat funds.
6. Collaboration with non-governmental organizations: Collaborate with NGOs: Since NGOs operate at the grassroots level, they possess a deep understanding of local issues; hence, Zakat organizations ought to collaborate with them. They can also collaborate with NGOs to organize various programs, such as financial management, project management, implementation, and monitoring and evaluation, which will train them to manage Zakat Funds more effectively.
7. Capacity Building for NGOs: NGOs can provide data about the Muslim community; through this data, you can identify which areas need more financial support.
8. Financial Inclusion and Economic Development: Microfinance and Entrepreneurship: Zakat funds can be utilised by the poor to bolster microfinance initiatives and entrepreneurship programs. Through the provision of interest-free loans and startup capital, Zakat can empower individuals to achieve financial self-sufficiency, thereby diminishing long-term reliance on charity. Zakat funds act as crucial social safety nets, offering emergency assistance to the most vulnerable segments of society. Furthermore, it has the potential to improve the healthcare and housing infrastructure for those in need.
9. Ensuring Long-Term Sustainability: There should be a robust institutional framework to ensure the long-term sustainability of zakat regulation. This includes developing a skilled workforce, securing adequate funding, and continuously improving processes and systems based on feedback and changing needs.

1. Venkatesha Nayak & Kavya P. Hegde, Examining the Impact of Wealth Redistribution through Zakat, 22 Millah: Journal of Religious Studies 285 (2023).
2. Moid U. Ahmad & Athar Mahmood, Zakat Fund-Concept and Perspective, 2 International Journal of Monetary Economics and Finance 197 (2009).
3. Zakat: The Basic Rules for One of the Five Pillars of Islam, https://www.investopedia.com/terms/z/zakat.asp
4. Who is entitled to receive Zakat? - Hidaya Foundation, https://www.hidaya.org/publications/zakat-information/who-is-entitled-to-receive-zakat/
5. Understanding Zakat in Islam: A Comprehensive Guide, https://www.learnreadquran.com/understanding-zakat-in-islam/
6. Zulkipli Lessy, Historical Development of the Zakat System Implications for Social Work Practice, 2 Historical Development of the Zakat System Implications for Social Work Practice (2013).
7. Infaq & It’s Benefits - The Nature of Infaq | Zakat Foundation of America, https://www.zakat.org/infaq-benefits-nature-infaq
8. Differences Between Zakat and Sadaqah [10 Differences], https://sapa-usa.org/difference-between-zakat-and-sadaqah/
9. What is Qurbani? - Islamic Relief Worldwide, https://islamic-relief.org/news/what-is-qurbani/
10. Shahbaz Alam & Mezbah Uddin Ahmed, A CRITIQUE OF ZAKAT PRACTICES IN INDIA, Issues 2672 (2020).
11. Emanuel Schaeublin, Zakat Practice in the Islamic Tradition and Its Recent History in the Context of Palestine, (2014), http://referenceworks.brillonline.
12. Saeed Awadh Bin-Nashwan et al., Zakah Compliance in Muslim Countries: An Economic and Socio-Psychological Perspective, 19 Journal of Financial Reporting and Accounting 392 (2020).
13. Section 80G in The Income Tax Act, 1961, https://indiankanoon.org/doc/1846831/.
14. Insights On Section 12A Of Income Tax Act, 1961 (ITA), https://cleartax.in/s/insights-on-section-12a-of-the-income-tax-act-1961-ita.
15. FCRA: Guidelines, Registration Process and Compliance for NGOs and Trusts, https://taxguru.in/finance/fcra-guidelines-registration-compliance-ngos-trusts.html.
16. Yusuf Haji-Othman, Mohd Sholeh Sheh Yusuff & Syed Iradat Abbas, Issues, Challenges, and Opportunities in Managing Zakat in Non-Muslim Countries: The Case Study of the United Kingdom, 13 International Journal of Academic Research in Business and Social Sciences (2023).
17. Muhammad Ashiq & Ubaid Mushtaq, The Convergence of Crowd Funding and Zakat System in India: An Integrated Approach for Human Welfare, https://doi.org/10.12928/ijiefb.v3i2.1879.

Aishath Muneeza & Shahbaz Nadwi, The Potential of Application of Technology Based Innovations for Zakat Administration in India.

[1]. Venkatesha Nayak & Kavya P. Hegde, Examining the Impact of Wealth Redistribution through Zakat, 22 Millah: Journal of Religious Studies 285 (2023).
[2]. Id.
[3]. Moid U. Ahmad & Athar Mahmood, Zakat Fund-Concept and Perspective, 2 International Journal of Monetary Economics and Finance 197 (2009).
[4]. Zakat: The Basic Rules for One of the Five Pillars of Islam, https://www.investopedia.com/terms/z/zakat.asp (last visited May 19, 2024).
[5]. Who is entitled to receive Zakat? - Hidaya Foundation, https://www.hidaya.org/publications/zakat-information/who-is-entitled-to-receive-zakat/ (last visited May 21, 2024).
[6]. Understanding Zakat in Islam: A Comprehensive Guide, https://www.learnreadquran.com/understanding-zakat-in-islam/ (last visited May 20, 2024).
[7]. Zulkipli Lessy, Historical Development of the Zakat System Implications for Social Work Practice, 2 Historical Development of the Zakat System Implications for Social Work Practice (2013).
[8]. Id.
[9]. Id.
[10]. Infaq & It’s Benefits - The Nature of Infaq | Zakat Foundation of America, https://www.zakat.org/infaq-benefits-nature-infaq (last visited May 21, 2024).
[11]. Lessy, supra note 8.
[12]. Differences Between Zakat and Sadaqah [10 Differences], https://sapa-usa.org/difference-between-zakat-and-sadaqah/ (last visited May 21, 2024).
[13]. Lessy, supra note 8.
[14]. What is Qurbani? - Islamic Relief Worldwide, https://islamic-relief.org/news/what-is-qurbani/ (last visited May 21, 2024).
[15]. Lessy, supra note 8.
[16]. Shahbaz Alam & Mezbah Uddin Ahmed, A CRITIQUE OF ZAKAT PRACTICES IN INDIA, Issues 2672 (2020).
[17]. Id.
[18]. Emanuel Schaeublin, Zakat Practice in the Islamic Tradition and Its Recent History in the Context of Palestine, (2014), http://referenceworks.brillonline.
[19]. Id.
[20]. Lessy, supra note 8.
[21]. Schaeublin, supra note 19.
[22]. Saeed Awadh Bin-Nashwan et al., Zakah Compliance in Muslim Countries: An Economic and Socio-Psychological Perspective, 19 Journal of Financial Reporting and Accounting 392 (2020).
[23]. Id.
[24]. Section 80G in The Income Tax Act, 1961, https://indiankanoon.org/doc/1846831/ (last visited May 21, 2024).
[25]. Insights On Section 12A Of Income Tax Act, 1961 (ITA), https://cleartax.in/s/insights-on-section-12a-of-the-income-tax-act-1961-ita (last visited May 21, 2024).
[26]. Id.
[27]. FCRA: Guidelines, Registration Process and Compliance for NGOs and Trusts, https://taxguru.in/finance/fcra-guidelines-registration-compliance-ngos-trusts.html (last visited Jul 6, 2024).