Service Business ZakatConsultingFreelancingQuran + Hadith

Zakat on Service Business

The question of Zakat on service business is unique because service providers sell labor, expertise, and time rather than physical products, fundamentally changing Zakat calculation. How do you calculate Zakat when you have no inventory? What zakatable assets exist for consultants, freelancers, and professional service firms? Do you pay Zakat on work-in-progress for incomplete client projects? Are client deposits and retainer fees zakatable? How do you value accounts receivable and unpaid invoices? What about prepaid services and future commitments? Can you deduct business equipment, software subscriptions, and office expenses? Do different service professions (consulting, design, legal, accounting, marketing, IT services) have different Zakat treatments? This comprehensive guide answers every question about Zakat on service business with complete clarity for Muslim service professionals and consultants.

The definitive answer to Zakat on service business: Service businesses (consulting, freelancing, professional services, agencies) must calculate annual Zakat at 2.5% exclusively on liquid business assets including all business bank account balances, payment processor funds (PayPal, Stripe, Wise), accounts receivable representing completed work awaiting client payment, work-in-progress valued at actual costs incurred not billable amounts, client deposits and retainers received, and any other accessible business cash when total zakatable wealth exceeds nisab for one lunar year, with the critical principle being that service businesses have no inventory Zakat (selling intangible services not physical goods) but full cash and receivables Zakat applies identically to product businesses. This guide explains why services have no inventory component, how to calculate zakatable liquid assets, properly value work-in-progress at cost, determine which receivables are zakatable, handle client prepayments, manage business expenses and deductions, and authentic Quranic and Hadith evidence on business wealth Zakat as applied to modern service-based enterprises.

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Critical principle: Service businesses have no inventory Zakat

Understanding Zakat on service business begins with recognizing the fundamental distinction between product and service enterprises. Product businesses (retail, wholesale, ecommerce, manufacturing) hold physical inventory requiring Zakat calculation on goods held for sale. Service businesses (consulting, design, legal services, accounting, marketing agencies, IT services, freelancing) sell intangible services, labor, expertise, and time with no physical goods inventory. This creates completely different Zakat calculation focused exclusively on liquid business assets rather than inventory valuation. For Zakat on service business, there is no inventory component, no stock to count, no wholesale cost valuation of products because services are consumed immediately upon delivery leaving no stored goods.

However, the absence of inventory Zakat does not reduce overall Zakat obligation for service businesses. While product businesses calculate on inventory plus cash, service businesses calculate on cash plus receivables plus work-in-progress, often resulting in comparable or even higher zakatable wealth depending on business model. A consultant with £50,000 in unpaid invoices and £30,000 in business accounts has £80,000 zakatable wealth despite zero inventory. For Zakat on service business calculation, focus shifts entirely to liquid assets: money already received in business accounts, money owed by clients for completed work (receivables), work-in-progress valued at costs incurred, and client prepayments. The calculation is simpler than product businesses (no inventory valuation complexity) but requires careful attention to receivables and work-in-progress assessment.

Asset categories

Zakatable assets for service businesses

Identifying what counts toward Zakat calculation.

The four main zakatable asset categories

For Zakat on service business, zakatable wealth falls into four categories: business cash (all accessible funds), accounts receivable (money owed for completed work), work-in-progress (incomplete projects valued at cost), and client prepayments (deposits and retainers received). Understanding each category ensures comprehensive accurate calculation capturing all business wealth requiring Zakat.

Category 1: Business Cash

All money in business accounts regardless of platform or location. Includes business bank accounts, PayPal balances, Stripe accounts, Wise transfers, cash on hand, and any accessible business funds.

Examples:

  • Business current account: £15,000
  • PayPal business balance: £4,200
  • Stripe account funds: £2,800
  • Business savings account: £10,000

Category 2: Accounts Receivable

Unpaid client invoices for work already completed and delivered. Money clients owe you is your wealth even before receipt. Only include invoices for finished deliverables, not future work.

Examples:

  • Client A invoice (completed project): £8,000
  • Client B invoice (delivered consulting): £5,500
  • Client C invoice (finished design): £3,200
  • Overdue invoices still collectible

Category 3: Work-in-Progress

Incomplete projects where you have incurred costs (time worked, expenses paid). Value at your actual costs, not client billing amount. If you worked 50 hours at £40/hour cost (not billing rate), WIP value is £2,000.

Examples:

  • Ongoing project: 60 hours × £35 cost = £2,100
  • In-progress consulting: costs incurred £1,500
  • Partially completed design: time cost £800
  • Subtract from billable when invoiced

Category 4: Client Prepayments

Deposits, retainers, and advance payments received from clients for future services. Money received is zakatable even though you have future delivery obligations. Becomes your cash upon receipt.

Examples:

  • Monthly retainer received: £5,000
  • Project deposit (50% upfront): £6,000
  • Advance payment for future work: £3,500
  • Already in your accounts = zakatable

Non-zakatable business assets (excluded from calculation)

For Zakat on service business, certain business assets are excluded from zakatable wealth. Capital equipment used for work (computers, software, office furniture, vehicles used for business) are tools of trade not zakatable. Business goodwill, brand value, intellectual property, and client relationships have no Zakat obligation. Prepaid expenses you paid (office rent paid in advance, software subscriptions) are not zakatable as you already spent that money.

Asset TypeZakatable?Reason
Business bank accountsYesLiquid cash accessible for use
Accounts receivable (completed work)YesMoney owed to you is your wealth
Work-in-progress at costYesValue invested in incomplete projects
Client deposits receivedYesCash in your possession
Computers and equipmentNoTools of trade, capital assets
Software and subscriptionsNoBusiness tools and expenses
Office furnitureNoCapital assets for business use
Brand value and goodwillNoIntangible business assets

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Step-by-step process

Calculating Zakat on service business comprehensively

Complete methodology for service providers.

The five-step service business Zakat calculation

For Zakat on service business, follow this systematic five-step process ensuring comprehensive assessment of all zakatable business wealth. This method applies universally to all service professions: consulting, design, legal, accounting, marketing, IT services, freelancing, agencies, and professional practices.

Service Business Zakat Calculation Steps

1

Sum all business cash

Add balances from all business accounts: business bank accounts, PayPal, Stripe, Wise, cash on hand, any business savings. Every accessible pound in business accounts is zakatable.

2

Calculate accounts receivable

Total all unpaid client invoices for completed delivered work. Include overdue invoices still collectible. Exclude invoices for future work not yet performed.

3

Value work-in-progress at cost

For incomplete projects, calculate hours worked × your cost per hour (not billing rate) plus direct expenses incurred. This represents value invested in projects not yet invoiced.

4

Include client prepayments

Add all deposits, retainers, and advance payments received from clients. Money in your possession is zakatable even if services are still owed.

5

Deduct immediate business debts then calculate 2.5%

Subtract current liabilities (supplier invoices due, outstanding expenses). Multiply total zakatable wealth by 0.025 for annual Zakat obligation.

Valuing work-in-progress correctly

For Zakat on service business, work-in-progress valuation is critical. Value WIP at your actual costs incurred, not the billable amount clients will pay. If you bill clients at £150/hour but your actual cost is £50/hour (accounting for all business expenses, overhead, desired profit), value WIP hours at £50/hour. If you worked 40 hours on incomplete project billing £6,000 total but your cost is £2,000, include £2,000 in zakatable wealth, not £6,000.

This prevents inflating zakatable wealth with unrealized profit margins. For Zakat on service business WIP, the principle parallels product business inventory valuation at wholesale cost not retail price. Your labor cost is the wholesale equivalent; client billing is the retail equivalent. Always use cost basis for Zakat.

Example comprehensive service business calculation

Business: Marketing Consulting Firm

Business bank account: £22,000

PayPal balance: £3,800

Accounts receivable (3 invoices): £8,500 + £6,200 + £4,100 = £18,800

Work-in-progress: 85 hours × £40 cost/hour = £3,400

Client retainers received: £7,500

Business debts: £2,000 owed to contractors

Calculation:

Cash £25,800 + Receivables £18,800 + WIP £3,400 + Prepayments £7,500 = £55,500

£55,500 minus debts £2,000 = £53,500 zakatable wealth

Annual Zakat: £53,500 × 2.5% = £1,337.50

Receivables management

Handling accounts receivable and bad debts

When to include or exclude unpaid invoices.

Zakatable versus non-zakatable receivables

For Zakat on service business receivables, the key distinction is whether services have been delivered. Invoices for work you completed and delivered to clients are zakatable receivables (clients owe you for value received). Invoices for future work not yet performed are not zakatable (no current wealth, just future earning potential). Include completed work receivables regardless of whether invoice is current, 30 days overdue, or 90 days overdue if you reasonably expect payment.

Zakatable Receivables (Include)

Completed project invoices

Work delivered, invoice sent, awaiting payment

Monthly retainer work performed

Services delivered under retainer agreement

Overdue invoices (collectible)

Past due but client still expected to pay

Final project payments due

Project complete, final invoice outstanding

Non-Zakatable Items (Exclude)

Future work invoices

Invoice sent but work not yet performed

Bad debts (uncollectible)

Client bankrupt or invoice truly uncollectible

Recurring future invoices

Subscription services for upcoming months

Estimates and quotes

Proposed work, no agreement yet

Handling bad debts and uncollectible invoices

For Zakat on service business bad debts, truly uncollectible receivables can be excluded from zakatable wealth. If a client has gone bankrupt, disappeared, or the debt is genuinely irrecoverable after reasonable collection efforts, exclude that invoice. However, simply overdue invoices remain zakatable if you reasonably expect eventual payment. A 60-day overdue invoice is still zakatable; a 2-year overdue invoice from bankrupt client can be excluded.

Use honest assessment of collectibility. For Zakat on service business receivables assessment, include all invoices where recovery is reasonably probable. Exclude only invoices where recovery is genuinely impossible or highly improbable based on actual circumstances, not mere hope to reduce Zakat.

Retainer and subscription models

Many service businesses operate retainer or subscription models receiving monthly payments for ongoing services. For Zakat on service business retainers, money received upfront is zakatable immediately even though services will be delivered over time. If client pays £6,000 for 6-month retainer on January 1st, that £6,000 is zakatable on your Zakat date in February even though you have not yet delivered all services. The cash in your possession creates Zakat obligation regardless of future delivery commitments.

By profession

Zakat guidance for specific service professions

Consultants, freelancers, agencies, and professionals.

Business consultants and management advisors

For Zakat on service business consulting, calculate on all business cash, completed project invoices awaiting payment, ongoing projects valued at hours worked times cost rate, and any retainers received. Consultants often have substantial receivables (large project invoices) and significant WIP (multi-month engagements). Track hours invested in each active project, multiply by your cost per hour, total across all clients for comprehensive WIP valuation.

Freelance designers and creative professionals

For Zakat on service business freelancing, include PayPal and payment platform balances (Upwork, Fiverr, Freelancer), outstanding client invoices, and work-in-progress projects. Freelancers often work on multiple simultaneous projects; calculate WIP for each incomplete project separately then sum. If you have 5 ongoing projects with hours invested, value each at cost rate and aggregate for total WIP.

Marketing and creative agencies

For Zakat on service business agencies, include business accounts, client receivables across all active contracts, team hours invested in WIP (employee costs for incomplete projects), and client retainers. Agencies with employees calculate WIP using employee cost (salary cost, not billable rate). If junior staff costs £25/hour and worked 100 hours on project, WIP value is £2,500 regardless of £80/hour client billing rate.

Service ProfessionKey Zakatable AssetsWIP Valuation
Business ConsultantBusiness accounts, large project invoices, retainersHours worked × cost rate
Freelance DesignerPayPal, platform balances, client invoices, depositsProject hours × hourly cost
Marketing AgencyBusiness accounts, receivables, monthly retainersEmployee costs for incomplete work
Legal ServicesTrust accounts, billable hours, case depositsBillable hours at cost rate
Accounting FirmBusiness accounts, client receivables, retainersStaff time × cost per hour
IT ServicesBusiness cash, contracts receivable, maintenance feesLabor costs for incomplete implementations

Professional services with licensing or credentials

Legal practices, accounting firms, medical consulting, architectural services, and other licensed professionals calculate Zakat identically to unlicensed services. For Zakat on service business professional practices, credentials and licensing do not change calculation methodology. The professional license itself has no Zakat (it is permission to practice, not wealth). Calculate on business cash, receivables, WIP at cost, and prepayments universally across all service professions regardless of licensing requirements.

Complete assessment

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Real situations

Detailed examples of Zakat on service business

Complete scenarios showing service Zakat calculation.

Solo freelance graphic designer

Background: Aisha is freelance graphic designer working with multiple clients. She wants to calculate Zakat on service business properly.

Business cash: PayPal balance (client payments): £4,800. Business bank account: £6,200. Total cash: £11,000.

Accounts receivable: Client A invoice (logo delivered): £2,500. Client B invoice (website design complete): £3,800. Total receivables: £6,300.

Work-in-progress: Client C project (30 hours worked, not finished): 30 hours × £25 cost/hour = £750. Client D project (15 hours): 15 × £25 = £375. Total WIP: £1,125.

Client deposit: Client E paid 50% upfront (£1,200) for future project not started. This is zakatable prepayment.

Business debt: Owes contractor £400 for assistance on recent project.

Total zakatable wealth: Cash £11,000 + receivables £6,300 + WIP £1,125 + deposit £1,200 = £19,625. Minus debt £400 = £19,225.

Zakat calculation: £19,225 × 2.5% = £480.63 annual Zakat.

Key insight: For Zakat on service business freelancers, aggregate all payment platforms, outstanding invoices, partial project work valued at cost, and client advances comprehensively.

Business consulting firm with employees

Background: Yusuf runs consulting firm with 3 employees. Multiple active client engagements. Annual Zakat date is Ramadan 1st.

Business accounts: Business current account: £35,000. Business savings: £18,000. Total cash: £53,000.

Accounts receivable: 5 completed project invoices totaling £42,500 awaiting client payment.

Work-in-progress: Three ongoing projects. Project X: 120 employee hours × £40 avg cost = £4,800. Project Y: 85 hours × £40 = £3,400. Project Z: 200 hours × £40 = £8,000. Total WIP: £16,200.

Client retainers: Two clients on monthly retainer paid £5,000 each for current month. Total prepayments: £10,000.

Business debts: Owes £4,500 for office rent and £2,200 for contractor services. Total debts: £6,700.

Total zakatable wealth: Cash £53,000 + receivables £42,500 + WIP £16,200 + retainers £10,000 = £121,700. Minus debts £6,700 = £115,000.

Zakat calculation: £115,000 × 2.5% = £2,875 annual Zakat.

Key insight: For Zakat on service business with employees, value WIP using employee cost rates (salaries divided by hours), not client billing rates. Include substantial receivables from large consulting engagements.

Digital marketing agency with recurring clients

Background: Fatima operates digital marketing agency serving 12 clients on monthly retainers plus project work.

Business cash: Business account: £28,000. PayPal: £3,500. Stripe: £2,200. Total: £33,700.

Monthly retainer model: Clients paid £24,000 total for current month services (12 clients × £2,000 average). Services for this month partially delivered. Retainer money received is zakatable cash (already counted in business accounts above).

Project work receivables: Three one-time project invoices: £8,000 + £5,500 + £4,200 = £17,700.

Work-in-progress: Ongoing retainer work for month plus two incomplete projects. WIP valued at team costs: £6,400 total.

No significant debts: Pays expenses from retainer income monthly.

Total zakatable wealth: Cash £33,700 + receivables £17,700 + WIP £6,400 = £57,800.

Zakat calculation: £57,800 × 2.5% = £1,445 annual Zakat.

Key insight: For Zakat on service business subscription models, monthly retainers already received are in business cash. Calculate WIP on partially completed retainer services plus project work at team cost rates.

Legal practice with trust account

Background: Ahmed runs legal practice. Clients pay deposits into trust account held separately. He wants proper Zakat on service business legal services.

Operating account: £45,000 (business funds for expenses and income).

Trust account: £68,000 (client deposits held in trust). These are client funds being held, creating complex Zakat question.

Trust account treatment: Portion that is his earned fees (work completed) is zakatable receivable. Portion that is unearned client deposits for future work is zakatable prepayment (money he possesses even if held separately). Entire trust account balance is effectively zakatable as either receivables or prepayments.

Accounts receivable: Outstanding invoices sent: £15,000.

Work-in-progress: Billable hours on active cases: 180 hours × £60 cost = £10,800.

Total zakatable wealth: Operating £45,000 + trust £68,000 + receivables £15,000 + WIP £10,800 = £138,800.

Zakat calculation: £138,800 × 2.5% = £3,470 annual Zakat.

Key insight: For Zakat on service business legal and professional practices, trust account funds are zakatable as either earned fees (receivables) or client advances (prepayments). The separate holding does not change zakatable status.

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Islamic evidence

Quran and Sahih Hadith on business wealth Zakat

Authentic sources establishing service business Zakat.

Quran

Give from what you earned

Quran 2:267

Allah commands giving from good things earned through work and business. Service business earnings require purification. For Zakat on service business, Quranic obligation to give from earned income applies to consulting, freelancing, and professional services revenue.

Quran

In their wealth is a determined right

Quran 51:19

Allah establishes that accumulated wealth contains specific rights for the poor. Service business cash and receivables contain these rights. For Zakat on service business, business bank balances and unpaid invoices require annual 2.5% purification.

Quran

Those who give Zakat succeed

Quran 23:4

Allah mentions Zakat among qualities of successful believers. Service professionals succeed through proper business Zakat. For Zakat on service business operations, fulfilling obligations on liquid assets demonstrates Islamic commitment.

Quran

Establish prayer and give Zakat

Quran 2:43

Allah commands Zakat universally without specifying business type. Service and product businesses share core obligations. For Zakat on service business, universal command applies to all accumulated business wealth regardless of industry.

Hadith

Zakat on business wealth

Sunan Abu Dawud 1562

The Prophet (peace be upon him) commanded Zakat on business assets. Service business cash and receivables are business wealth. For Zakat on service business, Prophetic teaching applies to liquid business assets at 2.5% annually when above nisab.

Hadith

Calculate wealth annually

Sahih al-Bukhari 1454

The Prophet (peace be upon him) established annual wealth assessment. Service professionals assess business assets annually. For Zakat on service business, calculate total liquid wealth plus receivables on Zakat date each year for 2.5% obligation.

Hadith

Purify all business earnings

Sahih Muslim 987b

Zakat purifies business wealth and trade earnings. Service business revenue requires purification. For Zakat on service business, paying 2.5% annually on cash and receivables purifies consulting, freelancing, and professional income.

Hadith

Rights of the poor in wealth

Sahih al-Bukhari 1395

The Prophet (peace be upon him) taught Zakat is taken from wealthy and given to poor. Service business profits above nisab create obligation. For Zakat on service business, successful practices and consultancies owe Zakat to support needy Muslims.

Universal consensus on business wealth Zakat regardless of products versus services

All Islamic schools unanimously agree that business wealth is zakatable at 2.5% annually including cash, receivables, and assets held for trade. The Quran commands giving from earnings without distinguishing product versus service businesses. The Prophet (peace be upon him) established Zakat on business assets universally. Classical scholars applied business Zakat to merchants, craftsmen, and service providers across fourteen centuries. For Zakat on service business, contemporary Islamic councils and scholars maintain complete consensus that service-based enterprises owe Zakat on liquid business assets (cash plus receivables plus work-in-progress at cost) identically to product businesses that owe Zakat on inventory plus cash plus receivables. The absence of physical inventory in service businesses does not reduce Zakat obligation; it simply shifts calculation entirely to liquid assets and receivables. Hanafi, Maliki, Shafi, and Hanbali schools all require comprehensive business wealth assessment including money owed by clients and money invested in incomplete work. Modern fatwas consistently apply classical business Zakat principles to consulting, freelancing, professional services, and agencies recognizing that selling expertise and labor creates identical Zakat obligations as selling products when wealth exceeds nisab for one year.

FAQ

Frequently asked questions about Zakat on service business

Direct answers to common service business Zakat questions.

Do service businesses have to pay Zakat?

Yes, service businesses must pay Zakat on business cash, accounts receivable, and work-in-progress valued at costs incurred. No inventory Zakat exists since services have no physical goods. For Zakat on service business, calculate on liquid assets and receivables when above nisab for one year.

Is there any inventory Zakat for service businesses?

No, service businesses have no inventory Zakat because they sell labor, expertise, and time rather than physical products. For Zakat on service business inventory question, services are intangible making traditional inventory Zakat inapplicable to consulting, freelancing, and professional services.

What business assets are zakatable for service providers?

Zakatable assets include business bank accounts, payment processor balances, accounts receivable (invoices owed to you), retainer deposits received, work-in-progress valued at costs incurred, and prepayments received. For Zakat on service business assets, calculate on liquid wealth and receivables.

Do I pay Zakat on work-in-progress for incomplete projects?

Yes, work-in-progress is zakatable at costs you have incurred (hours worked valued at your cost, not billable rate). If you spent 20 hours on a project billing £100/hour but your time costs you £30/hour, value at £600 for Zakat. For Zakat on service business WIP, use cost basis not billing amounts.

Are client deposits and retainers zakatable?

Yes, deposits and retainers received from clients are zakatable cash even though you have future service obligations. Money received becomes your wealth creating Zakat obligation. For Zakat on service business prepayments, include all client advances and retainer amounts in zakatable cash.

Can I deduct business equipment and software from Zakat?

No, capital assets like computers, software, office furniture are not zakatable but also not deductible. Only immediate debts reduce zakatable wealth. For Zakat on service business equipment, these are tools of trade excluded from both zakatable assets and permissible deductions.

What about accounts receivable and unpaid invoices?

Unpaid client invoices are zakatable as accounts receivable when you have delivered services and clients owe payment. Invoices not yet delivered (future work) are not zakatable. For Zakat on service business receivables, include only invoices for completed work awaiting payment.

Do freelancers and consultants calculate Zakat differently?

No, all service providers use identical methodology: business cash plus receivables plus WIP at cost. Whether freelance designer, business consultant, or professional service firm, calculation is same. For Zakat on service business across professions, the service-based model creates uniform Zakat treatment.

Can I deduct future expenses or anticipated costs?

No, only actual debts already incurred are deductible. Future anticipated expenses like upcoming rent or planned purchases are not deducted. For Zakat on service business deductions, calculate on current balances minus only current liabilities, not future obligations.

What if my service business has seasonal income fluctuations?

Calculate on whatever wealth you possess on your annual Zakat date regardless of whether high or low season. Some service businesses have busy periods and slow months; assess wealth on Zakat date honestly. For Zakat on service business seasonality, timing of date determines assessment without seasonal adjustments.

Fulfill your Zakat obligation

Calculate Zakat on service business and all wealth

Whether you operate as solo freelancer, consulting firm, creative agency, legal practice, accounting service, marketing consultancy, IT services provider, or any professional service business, calculate your complete annual Zakat obligation accurately on business and personal wealth. Sum all business cash across bank accounts and payment processors, total accounts receivable for completed work awaiting payment, value work-in-progress at actual costs incurred not billable amounts, include all client deposits and retainers received, deduct immediate business debts, and calculate 2.5% on total zakatable wealth when above nisab for one year. Fulfill this pillar of Islam with confidence knowing service business Zakat principles are clearly established through classical business wealth methodology recognizing that service enterprises selling expertise and time have identical obligations as product businesses on their liquid assets and receivables.

Disclaimer: This guide provides comprehensive educational information about Zakat on service business based on universal scholarly consensus that business wealth including cash and receivables is zakatable at 2.5% annually. All Islamic schools agree that service businesses owe Zakat on liquid assets identically to product businesses on their inventory and cash. Individual circumstances vary based on specific service models (consulting, freelancing, agencies, professional practices), receivables structures, work-in-progress valuation methods, client payment arrangements, and business structures. While fundamental principles that service businesses calculate Zakat on cash plus receivables plus WIP at cost are firmly established, nuanced questions about specific receivables collectibility, complex WIP valuation, trust account treatments, or partnership structures may benefit from consultation with qualified Islamic scholars familiar with both classical business jurisprudence and contemporary service business operations. This guide represents mainstream Islamic teaching on Zakat on service business providing practical implementation guidance for the vast majority of Muslim service professionals, consultants, freelancers, and agencies.

About this Content

Written by the Zakat Finance editorial team. All content is based on authentic Islamic scholarship and is reviewed regularly to ensure accuracy. The content aims to provide guidance on Zakat calculation and does not replace advice from a qualified Islamic scholar.

Last updated: February 2026

Method note: We present common scholarly approaches to Zakat calculation, encouraging consultation with trusted scholars for personal cases.