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In Sharia (Islamic Law) niṣāb (نِصاب) is the amount a Muslim's net worth must exceed for them to be obligated to give zakat. Several hadith have formulas for calculating niṣāb, the most prominent of which declares that No Zakāt is due on wealth until one year passes. Zakat is determined based on the amount of wealth acquired; the greater one's assets, the greater the tax. Unlike Income Tax in secular states niṣāb is not subject to special exemptions.
In Islam niṣāb is 20 dinārs for gold and 200 dirḥams for silver[dubious ]. The dinār is a gold coin weighing one mithqal (4.25 grams) and the dirḥam is a silver coin weighing 0.7 mithqal (2.975 grams). The niṣāb is applicable to the cumulative stock of dinārs, dirḥam and any other zakatable valuables, such as merchandise that has been in store for at least one year. As long as the total value of the zakatable valuables exceeds the value of the niṣāb zakat must be paid.
The Value of the Niṣāb
The value of the niṣāb is calculated in dinār coins and dirḥam coins. The relation between 20 dinārs and 200 dirḥams which is part of the definition of niṣāb reflects the contemporary exchange value between the dinār and the dirḥam of 1 to 10 in the early days of Islam. In later times the exchange rate between the two Sharia coins changed according to market values, and so exchange rates of 1 to 11 and 1 to 12 are seen in early fiqh literature. This exchange rate has varied even more in the last few centuries. The shift in exchange rate meant that in later times 20 dinārs became more expensive in market value than 200 dirḥams. Despite this the definition of niṣāb has not been altered throughout Islamic history, and therefore a choice is created between the value of 20 dinārs and the value of 200 dirḥams. Both values are accepted in Shariah, and so one can choose to pay the value of either of them.
The Value of the Coins and the Value of the Metal
The value of one dinār is not identical to the value of the gold content of one dinār, and likewise with the silver in a dirḥam. There is also difference in value between dinārs depending on their quality and their acceptability. Although all gold or silver coins and products must be exchanged by weight and not by value in order to prevent riba al-fadl, different coins may have different market values as is reflected in the fiqh literature when it is said that some coins are not popular (makruhi)[See Imam Malik's al-Muwatta]. The value of the dinār and dirḥam are thus different than their respective gold and silver content. This represents a problem to modern Muslims because dinār and dirḥam coins are difficult to obtain.
A Practical Approach to the Lack of Dinār and Dirḥams
Some modern scholars have accepted that since dinārs and dirḥams are no longer readily available the best solution is to calculate the niṣāb using a mithqal of pure gold as a reference. Although this is not an exact calculation it is considered a valid approximation given current circumstances.
In some countries Muslim communities have minted their own dinārs and dirḥams following the original standards. These coins are used both as a method for general payment and specifically to pay zakat.
One Year Rule
In order to be liable for zakat a Muslim must possess wealth in excess of the niṣāb level for one lunar year (354 days). This year begins on the date the wealth is obtained; so long as the assets are in its owner's possession at the beginning and end of the lunar year the zakat tax is applicable. In many modern societies niṣāb is considered equivalent to a governmentally determined poverty threshold.