"They ask you (O Muhammad) what they should spend in charity. Say: 'Whatever you spend with a good heart, give it to parents, relatives, orphans, the helpless, and travellers in need. Whatever good you do, God is aware of it.'" (2:215)
Charity, preached by every religion of the world, is a way of bringing justice to society. And justice is the essence of religion, Islam has therefore made charity, that is zakat, obligatory and binding upon all those who embrace the faith; it has been made into an institution in order to give in permanence and regularity.
All human beings, according to Islam, have been created by one and the same God, and for this reason they belong to one great brotherhood. All being descendants of the same progenitor, Adam and Eve, they should naturally be each other's well-wishers. They must willingly come to one another's assistance, like members of the same large family. Islam has, therefore, laid the greatest of emphasis on the support of destitute and disabled members of society. It is a sacred duty of the wealthy to give part of their possessions to fulfill the needs of the deprived sections of the community.
A society can flourish only when its members do not spend all their wealth on the satisfaction of their own desires but reserve a portion of it for parents, relatives neighbors, the poor and the incapacitated. As the saying goes: Charity begins at home. A true believer is thus always prepared, after meeting the needs of his family, to assist other people in need of his help.
The Prophet Muhammad (peace be upon him) said: "The believer's shade on the Day of Resurrection will be his charity." - Al-Tirmidhi
There are two forms of charity in Islam - obligatory and voluntary, called zakat and sadaqa respectively. Zakah, from the verb zaka, which signifies "to thrive," "to be wholesome," "to be pure" means purification. Giving up of a portion of the wealth one may possess in excess of what is needed for sustenance, is to "purify" or legalize it so that the remainder may lawfully be used by the alms giver.
Deducting zakat from one's earnings is a material acknowledgment of the fact that the actual giver is God. Since the giver is God, the recipient is duty bound to spend it in His cause.
The law of zakat is to take from those who have wealth and give it away to those who do not. This rotation of wealth is a way to balance social inequality.
Islam has established this institution to make concern for the poor a permanent and compulsory duty. This means an annual contribution of two and a half percent of one's income to public welfare. The rate on other types of wealth such as agricultural produce and jewelry is more. It is incumbent on minors and adults, males and females.
Islamic law empowers the Islamic State or Community to collect such contributions and keep a separate account of them. The funds thus accumulated must be spent on the eight categories specified in the Qur'an(2:177) namely, the poor and the destitute, the wayfarer, the bankrupt, the needy, converts, captives, the collectors of zakat, and in the cause of God. The last category allows such funds to be used for the general welfare of the community - for the education of the people, for public works, and for any other need of the Muslim community.
Zakat in spirit is an act of worship while in its external form it is the carrying out of social service. It is thus not just the payment of a tax as it is generally understood but is rather an act of religious significance. Its importance is underscored by the fact that the Qur'an treats it at par with salat(prayer). The Qur'an frequently enjoins the believers 'to perform the worship and pay the zakat.' It goes to the extent of saying that one cannot attain righteousness unless one spends out of one's wealth for the love of God:
"By no means shall you attain righteousness, unless you give of that which you love."(3:92)
So the test of charity lies not in giving away something we have discarded but the things that we value greatly, something that we love. It is unselfishness that God demands. It may be in any form - one's personal efforts, talents, skill, learning, property or possessions.
The demand of Islam that all its followers should spend their wealth freely on the common good of society cannot be fully met by the payment of the obligatory levy of zakat. According to a hadith the Prophet observed: "In one's wealth there is a due (to God and His men) besides zakat." Hadrat Ali, the fourth Caliph, explained this hadith thus: "God has ordained that the rich are to pay out of their wealth to that extent which is sufficient for the needs of the poor; so that if they do not find food and clothing, or any other need remains to be fulfilled, it would be because the rich are not doing their duty, and for this God will take them to task on the Day of Judgment.
"And those who dispense their charity with their hearts full of fear, because they will return to their Lord." (23:60)