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Zakat is the noble principle of setting aside a portion of one's wealth as alms for the less fortunate, so as to earn the goodwill of the Almighty. Pious Muslims, particularly during the holy month of Ramzan, make it a point to give away some of their largesse to their less fortunate brethren, in order to foster a sense of general well-being in the society.
The concept of Zakat is believed to be compulsory or Fard, and every pious Muslim is expected to be charitable and abstain from greed. In fact, Zakat is one of the five pillars of Islam, with the Quran saying that the one who pays Zakat purifies his own wealth and creates virtue for himself and for society in general.
The Quran also specifies the intended recipients of Zakat, who are namely - the Fakir: a spiritually inclined person who lacks material possessions or an adequate means of livelihood; the Miskin: one who has insufficient means of livelihood; the Amil: an officially appointed collector of Zakat; the Muallaf: a convert to Islam; the Riqab: a slave who aspires for freedom; the Gharmin: an individual in debt; the Fisabillillah: a man of God; and the Ibnus Sabil: a traveller stuck in transit.
The essential principle of Zakat is that all wealth belongs to the Almighty, and therefore in giving to God, a righteous act is committed. The word Zakat literally means "growth" or "increase".
So, 2.5% of all wealth is considered obligatory alms to the poor and all wealth, particularly that earned for profit, is zakatable, although Zakat isn't calculated on household goods and items of day-to-day use.
Zakat seeks to develop the community as one organic structure, so as the individual prospers, the community does so too and vice versa. This is the essential sense of community inherent to Islam, and it helps to foster development in a very inclusive manner.
On a more philosophical level, Zakat attempts to imbibe in the individual a sense of detachment and charity towards material belongings by teaching the pious that material ownership is a myth, and everything actually belongs to God. It further teaches the pious to be honest and self-disciplined, while fostering a sense of community among the devout.
Ideally, Zakat ought to be paid voluntarily and in secret because the essential purity of the act is destroyed if it is either coerced or publicized. If someone has nothing to give as Zakat, they can still make every possible attempt at Zakat.
To quote the Quran:
The Prophet said: 'Charity is a necessity for every Muslim. ' He was asked: 'What if a person has nothing?' The Prophet replied: 'He should work with his own hands for his benefit and then give something out of such earnings in charity.' The Companions asked: 'What if he is not able to work?' The Prophet said: 'He should help poor and needy persons.' The Companions further asked 'What if he cannot do even that?' The Prophet said, 'He should urge others to do good.' The Companions said, 'What if he lacks that also?' The Prophet said, 'He should check himself from doing evil. That is also charity.'