Payment of Zakaat is the third act of worship in Islam. It is a tax which is levied on surplus money, gold, and silver at the rate of two and a half percent annually. Zakaat means purification of property and increase of goods.
By payment of the Zakaat tax, the rich in fact deduct a share for the poor from their surplus wealth thus purifying it. The poor, on the other hand, are provided with monetary assistance to help raise their living standard.
It is a beautiful system where the rich get to help the poor, without the poor feeling indebted to the rich. The Zakaat when due, is given to a central fund and the people who are in charge of distribution, will give it to the poor and needy, as required. Thus the poor and needy are not aware as to who gave them the money; likewise, the rich also do not know where their money went. Therefore, neither feels obliged to the other.
The proceeds of Zakaat are supposed to be devoted towards:
relieving poverty and distress
helping those in debt
providing comfort and convenience for travellers
providing stipends for scholarships
providing ransom for prisoners of war
propagation of Islam
meeting the expenses for the collection of Zakaat
other things beneficial for the society
Zakaat, therefore, is a duty enjoined by God in the interest of the society as a whole. While on one hand these charitable contributions provide for the needs for the society, on the other hand, the act of giving in the name of God, purifies the heart of the contributor from selfishness and greed.
There is a second kind of charity in Islam. Besides the obligatory charity of Zakaat, there is also a voluntary charity called Sadaqah. Sadaqah can be given by anyone, at anytime, of any amount. Therefore, even those people who are poor and needy and benefit from the Zakaat, they also have a way of purifying themselves and giving thanks to Allah through Sadaqah.