Zakat in the furūʿ al-dīn is an obligatory form of charity. Just as salāt is an obligation we have towards God, zakat in a way is an obligation that we have towards God’s creation. 

It is obligatory because it is a right that the poor have on those who are more fortunate. In other words, zakat is principally designed to help those who suffer from severe poverty. Zakat is also there to help people free themselves from slavery, or those who cannot provide for themselves because they are drowning in debt.  

Zakat cannot be paid with modern currencies in Islamic law as taught by the Prophet Muhammad (s) and his Ahl al-Bayt (as). Zakat is usually paid from tangible items from one’s “sitting” assets like gold or silver. Other items may include wheat and barley, and also live stock like camels, cows and sheep. One usually pays 2.5% from this income. 

As zakat is generally geared towards helping the poor, khums (which literally means 1/5th) is generally geared towards helping Muslim institutions. Indeed, khums may be used to help the poor and the less fortunate, but it is more expansive and for this reason, its tax rate is higher.  

Khums was originally meant to be offered to the Messenger of Allah (s) or an Infallible Imām. Since our last Imām is in occultation, Islamic law permits Muslims to pay their khums to a just marjaʿ (a high ranking scholar of law that is a source of legal emulation) or legitimate Muslim organization that collects on behalf of a scholar.  

The money gained from khums today is what funds Mosques and their respective programs, Islamic schools, live religious events, feeding the community during special religious days, paying the salary of a resident ʿālim, etc.