Planit:Entering Zakat Tax Rebates Case Study

When planning for an Islamic client, ensuring proper planning for the payment of zakat is one of the most essential elements for proper practice. As the planner, you are responsible for ensuring that your calculations are accurate, and based on the correct assumptions for liable accounts, nisab et cetera. You can then model the tax rebates that your client will be eligible for based on the zakat payment.

Example Problem One:

Nidal Dhakir and Rasha Nadhir have begun planning for their current zakat due based on wealth (of RM 6500 and RM 500 respectively) and want to realize any tax rebates available.

Solution Using Detailed Cash Flow:

Use the drop-down menu to go straight to the Cash Flow Management screen.

Here, you would enter the clients cash flow information and then, since the zakat is due for this year for their accumulated wealth, you can enter the zakat as a tax rebate based on the current tax system in your country. To do this, you will have to use the Detail Cash Flow button in the top right of the data entry screen.

1. First you will have to expand the Taxes section to enter more data by clicking on the Plus sign.
2. In between the Taxes Payable and the Balance Due of the taxes, there is an editable field for Income Tax Deducted. This is where you will enter the amount of zakat being paid so that the full amount of the rebate is subtracted from the final taxes instead of the tax-liable income.
3. Under Client’s Income Tax Deducted enter the $6,500 of zakat due.
4. Under Spouse’s Income Tax Deducted enter the $500 zakat due.
5. Click Save so the taxes due for this year are re-calculated.
6. Click Back to return to the summary Cash Flow screen.

Note: The Taxes Paid at the summary level will still show the value for taxes payable as opposed to the final taxes due after the rebate. This is because the tax rebate is a one-time rebate and going forward higher level of income taxes payable will apply, rather than a higher lifestyle.

Go to the exercise to test your knowledge on Zakat Tax Rebates