ISLAM AND CHARITY
Charity meansSomething given to help the needy by giving money, food, etc. There are two forms of charity in Islam - obligatory and voluntary, called zakathand 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.
Linguistically, Charity means Sadaqah in Arabic, it comes from the root word sidq (sincerity), i.e. it is a sign of sincerity of faith on the part of the person who gives it.
Allah encourages for giving charity in various places of Quran. Allah (Glory be to Him) says “O you who believe! Spend of that with which We have provided for you, before a Day comes when there will be no bargaining, nor friendship, nor intercession. And it is the disbelievers who are the Zaalimoon (wrongdoers)” Qur’an.Surah Baqarah 2:254
“The likeness of those who spend their wealth in the way of Allah (Glory be to Him), is as the likeness of a grain (of corn); it grows seven ears, and each ear has a hundred grains. Allah (Glory be to Him) gives manifold increase to whom He wills. And Allah (Glory be to Him) is All-Sufficient for His creatures’ needs, All-Knower. Those who spend their wealth in the Cause of Allah (Glory be to Him), and do not follow up their gifts with reminders of their generosity or with injury, their reward is with their Lord. On them shall be no fear, nor shall they grieve” Qur’an.Surah Baqarah 2:261-262
“O you who believe! Spend of the good things which you have (legally) earned, and of that which We have produced from the earth for you, and do not aim at that which is bad to spend from it, (though) you would not accept it save if you close your eyes and tolerate therein. And know that Allah (Glory be to Him) is Rich (Free of all needs), and Worthy of all praise” Qur’an.Surah Baqarah 2:267
“Believe in Allah (Glory be to Him) and His Messenger Prophet Muhammad (May Allah honour Him and Grant Him peace), and spend of that whereof He has made you trustees. And such of you as believe and spend (in Allah’s way), theirs will be a great reward” Qur’an.Surah Hadeed 57:7
And spend something (in charity) out of the substance which we have bestowed on you, before Death should come to any of you and he should say, “O my Lord! Why didst Thou not give me respite for a little while? I should then have given (largely) in charity, and I should have been one of the doers of good.” But to no soul will Allah (Glory be to Him) grant respite when the time appointed (for it) has come; and Allah (Glory be to Him) is well-acquainted with (all) that ye do. Qur’an.Surah Munafiqun 63 :10-11
Charity should be given solely out of love for Allah (Glory be to Him), out of the desire to do good to His creation, as the Quran says about the righteous: "They give food, out of love for Him (Allah), to the poor, the orphan, and the slave, saying: We feed you only for Allah's Pleasure - we desire from you neither reward nor thanks." Qur’an.Surah Insan 76: 8-9
Giving Charity will not diminish a Muslim's wealth. It serves as expiation for sins and yields rewards in the next life. It is stated in the Qur'an: "For those who give in charity, men and women, and loan to Allah (Glory be to Him) a Beautiful Loan, it shall be increased manifold (to their credit), and they shall have (besides) a liberal reward." Qur’an.Surah Hadid 57: 18
It was narrated that Abu Hurayrah (R) said: The Messenger of Allah (May Allah honour Him and Grant Him peace)said: “Whoever gives charity equal to a date from good (halal) earnings – for Allah (Glory be to Him) does not accept anything but that which is good – Allah (Glory be to Him) will take it in His right hand and tend it for the one who gave it as any one of you tends his foal, until it becomes like a mountain.” Sahih Al Bukhari, 1344 and Sahih Muslim, 1014
It was narrated from Abu Hurayrah (R) that the Prophet Muhammad (May Allah honour Him and Grant Him peace) said: “There is no day on which the people get up but two angels come down and one of them says, ‘O Allah, give in compensation to the one who spends (in charity),’ and the other says, ‘O Allah, destroy the one who withholds.’” Sahih Al Bukhaari, 1374 and Sahih Al Muslim, 1010
"Charity extinguishes sin as water extinguishes fire." Tirmidhi 2541
"Charity appeases the Lord’s anger and averts a fire death“”." Tirmidhi 1909
"Give the Charity without delay, for it stands in the way of calamity." Tirmidhi 1887
"The believer’s shade on the Day of Resurrection will be his Charity." Tirmidhi 1925
It is reported on the authority of Aisha (R) that Prophet Muhammad (May Allah honour Him and Grant Him peace) said, "Every one of the children of Adam has been created with three hundred and sixty joints; so he who declares the Greatness of Allah (Glory be to Him) (i.e, saying "Allahu akbar"), praises Allah (Glory be to Him) ("Alhamdulillah"), declares Allah (Glory be to Him) to be one ("La ilaha ilallah"), glorifies Allah (Glory be to Him) ("Subhan'Allah"), and seeks forgiveness from Allah (Glory be to Him) ("Astaghfirullah"), and removes a stone or thorn or bone from people's path, and enjoins good and forbids evil, to the number of those three hundred and sixty, will come upon the evening that day having rescued himself from jahannam." Sahih Al Muslim 2199 
Zakaah in Arabic means growth, blessing and purification. [Arabic dictionary of Lisaan al-‘Arab, 14/358, 2/399]
Zakaah means worshipping Allah (Glory be to Him) by giving that which He has enjoined of different kinds of zakaah to those who are entitled to them, according to the guidelines prescribed in sharee’ah.
With regard to the difference between zakaah and sadaqah, it is as follows:
1. Zakaah is enjoined in Islam on specific things, which are: gold, silver, crops, fruits, trade goods and an’aam livestock, i.e., camels, cattle and sheep.
With regard to sadaqah, it is not obligatory on any kind of wealth, rather it is what a person can give, without any specific limits or guidelines.
2. Zakaah is subject to the conditions that one full Hijri have passed since acquiring the wealth, and that the wealth meet the minimum threshold (nisaab), and it is a specific portion of wealth.
Sadaqah is not subject to any conditions, and it may be given at any time, in any amount.
3. Allah (Glory be to Him) has enjoined that zakaah be given to certain types of people, and it is not permissible to give it to anyone else. They are the people mentioned in the Qur’an: “As-Sadaqaat (here it means Zakaah) are only for the Fuqaraa’ (poor), and Al‑Masaakeen (the poor) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allah (Glory be to Him)’s Cause (i.e. for Mujaahidoon — those fighting in a holy battle), and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allah (Glory be to Him). And Allah (Glory be to Him) is All-Knower, All-Wise” Qur’an.Surah Tawbah 9:60
With regard to sadaqah, it may be given to those mentioned in the ayath on zakaah and to others.
4. Whoever dies and owes zakaah, his heirs must pay it from his wealth, and that takes precedence over the will (wasiyah) and inheritance.
As for sadaqah, there are no such obligations with regard to it.
5. The one who withholds zakaah is to be punished, as it says in the hadeeth as mentioned in Sahih Muslim 987.
With regard to sadaqah, the one who does not pay it will not be punished.
6. According to the four schools of law, it is not permissible to give zakaah to one’s ascendants or descendents. Ascendants include one’s mother, father, grandfathers and grandmothers; descendents include one's children and their children.
Sadaqah may be given to one's ascendants and descendants.
7. It is not permissible to give zakaah to one who is rich or who is strong and able to earn a living.
It was narrated that ‘Ubayd-Allah ibn ‘Adiyy said: Two men told me that they came to the Prophet Muhammad (May Allah honour Him and Grant Him peace) during the Farewell Pilgrimage when he was distributing the zakaah and asked him for some of it. He looked them up and down, and saw that they were strong and able-bodied. He said, “If you wish, I will give you some, but those who are rich or strong and able to earn have no share of it.” Abu Dawood, 1633, al-Nasaa’i, 2598
Sadaqah may be given to those who are rich and those who are strong and able to earn.
8. In the case of zakaah, it is better for it to be taken from the rich of a land and given to their poor. Many scholars are of the view that it is not permissible to send it to another country unless that serves an interest.
But charity may be spent on those who are near and those who are far.
9. It is not permissible to give zakaah to kuffaar and mushrikeen.
Sadaqah may be given to kuffaar and mushrikeen.
Allah (Glory be to Him) says (interpretation of the meaning): “And they give food, in spite of their love for it (or for the love of Him), to the Miskeen (the poor), the orphan, and the captive” Qur’an.Surah Insaan 76:8
Al-Qurtubi said: In dar al-Islam (the Muslim lands), a captive could only be a mushrik.
10. It is not permissible for a Muslim to give zakaah to his wife. Ibn al-Mundhir narrated that there was scholarly consensus on this point.
But sadaqah may be given to one’s wife.
These are some of the differences between zakaah and sadaqah.
The word sadaqah may be applied to all kinds of good deeds. Al-Bukhaari (may Allah have mercy on him) said in his Saheeh: “Chapter: every good deed is a charity” then he narrated from Jaabir ibn ‘Abd-Allah (may Allah be pleased with him) that the Prophet Muhammad (May Allah honour Him and Grant Him peace)said: “Every good deed is a charity.”
Ibn Battaal said: This hadeeth indicates that every good thing that a person does or says is recorded for him as an act of charity.
Al-Nawawi said: The Prophet’s words “Every good deed is a charity” means that it is like charity in reward.
Note: Sometime Sadaqa is referred as Zakath in Qur’an. For Ex: As mentioned in Qur’an.Surah Taubah 9:60.