This is the threshold which one needs to possess for a year in order to be obliged to pay Zakat. Once an individual reaches and maintains the Nisaab for a year, they are obliged to give 2.5% of their surplus wealth as Zakat. The surplus wealth includes saving, assets and investments.
The contemporary Hanafi school prefer using the Nisaab of silver to establish the obligation of Zakat. As silver is cheaper than gold, there is a lower Nisaab value which makes more people obliged to pay Zakat and in turn would allow a greater flow of Zakat to the poor. To calculate the Nisaab, you can find the market value of 1 gram of silver and multiply by 595. 595 grams of silver was the Nisaab value set by the Prophet (saw) A blessing of Zakah The Muslims witnessed such an era during the reign of Umar bin Abdul-Aziz, so much in fact that the Zakat collected was said to have been used to sponsor those who needed financial help in getting married, as the number of poor people willing to accept Zakat had diminished. It is unfortunate that this notion of divine blessing is often neglected in contemporary discourses on Islamic finance.
There are eight categories of people to whom Zakat can be distributed. These have been identified as:
Al-Fuqara: The Poor – Those who have neither assets nor any means to earn their living, some scholars include those who have little money and are not eligible to pay Zakat.
Al-Masakin: The Needy – Those whose wealth does not meet their necessities financially Al-‘Amilina ‘Alayha: Administrators of Zakat – Those who collect and distribute the Zakaat, includes those who store, guard and register it.
Al-Mu’allafate-Qulubuhum: Reconciliation of Hearts – Those who have embraced Islam or inclined towards Islam. Fir-Riqab: Muslim prisoners – Zakat can be used to free the Muslim prisoners.
Al-Gharimin: Those in Debt – Zakat can be used to pay off debts as long as the debt was not incurred contrary to Islamic law.
Fi-Sabilillah: In the Cause of Allah – Zakat can be used to defend Islam and land. This includes Muslim soldiers, their needs and the wider sense of protecting Islamic values.
Ibnas-Sabil: The Wayfarer – A traveller who is on a journey for a good purpose and does not have enough funds to return home.