ZAKATH IN ISLAM
Zakah is an obligatory form of "charity" expected from every Muslim individual. This form of "charity" is an act of worship. Zakah is one the five pillars or fundamentals of Islam. The remaining pillars are the Shahadah (profession of faith), performing daily Salat (prayers), fasting and pilgrimage to Makkah. Zakah is considered an important economic tool in an Islamic State or society. It provides a religiously approved method of managing the economy and finance. Zakah has also been scrupulously prescribed in the Glorious Qur'an in many aayaath of the Qur'an and Ahadeeth.
Literally, zakah means to "purify". It refers to the purification of a Muslim's wealth and soul. Wealth purification denotes the mobilization of assets for the purpose of financial growth and justified distribution. Purification of the soul implies freedom from hatred, jealousy, selfishness, uneasiness and greed. Other Qur'anic connotations include the purification of sin.
Technically, zakah is a fixed proportion collected from the surplus wealth and earnings of a Muslim. It is then distributed to prescribed beneficiaries and for the welfare as well as the infrastructure of a Muslim society in general. This contribution is made payable by a Muslim once in every lunar year (Islamic Calendar/Hijri).
Zakah is paid on the net balance after a Muslim has spent on basic necessities, family expenses, due credits, donations and taxes. Every Muslim male or female who at the end of the Hijri year is in possession of the equivalent of 85 grams of gold or more in cash or 595 grams of silver, must pay his or her zakah at the minimum rate of 2.5%.
Zakah has a deep humanitarian and social-political value. This religious act prevents the hoarding of wealth and advocates solidarity amongst Muslims because excessive wealth is distributed amongst the poor.
All Muslims who are wealthy enough, must perform this charity in order to purify their wealth in the eyes of Allah (Glory be to Him). In other words, Allah (Glory be to Him) blesses us with wealth; it is therefore our duty to give some of this back to those most needy, which purifies the rest of our wealth. As Allah (Glory be to Him) says: ‘Take from their wealth so that you might purify and sanctify them.’ Qur’an.Surah Tawba 9:103.
This is based on Allaah's Statement in the Qur'an: "And those who hoard gold and silver and spend it not in the way of Allaah - give them tidings of a painful punishment. "Qur’an Surah Tawbah 9:34
Zakath comes under compulsory act for those who fits on Nisab (required amount). The payment of Zakath is obligatory, as it is one of the five pillars of Islam. Sahih Al Bukhari Vol 1:8.
Two things are necessary conditions for Zakath i.e., amount of wealth and the time duration as mentioned in Islam. Every Muslim who owns a fixed, minimum amount of wealth (called Nisab), and who satisfies certain other conditions, must pay Zakath.
Types of Possessions That Require Paying the Zakath in general
The Nisab amount for gold is twenty Mithqals, or ~85 grams. The Nisab for silver is one hundred and forty Mithqals, or ~595 grams. If the amount of gold and silver jewelry that a woman owns is less than these amounts, there is no Zakath due upon her jewellery.
The amount of gold that requires Zakath is around 85 grams, when this amount or more has remained unchanged in one's possession for one full year. The required Zakath in this case is one-fourth of a tenth (2.5%), which is approximately 2.125 grams.
Silver requires Zakath to be paid when it reaches 595 grams or more and when this amount remains unchanged in one's possession for a full year. The amount of Zakath required in this case is also one-fourth of a tenth (2.5%), which is approximately 14.87 grams.
Cash at One's Disposal
When it is worth the amount of gold that requires Zakath and when this amount remains above the Nisab value for a full year. Zakath in this case is also one-fourth of a tenth, or 2.5%.
Types of Possessions
Types of Possessions that require zakath other then gold, silver and money are
Zakath is spent on eight groups of people, as mentioned in the Qur'an (Arabic word As-Sadaqat here it means compulsory charity i.e., Zakath): "Zakath expenditures are only for the poor and for the needy and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allaah and for the [stranded] traveler - an obligation [imposed] by Allaah . And Allaah is Knowing and Wise. Qur’an Surah Tawbah 9:60
Punishment if you don’t pay it after Nisab
The Prophetﷺ said: “Whoever is made wealthy by Allah and does not pay the Zakât of his wealth, then on the Day of Resurrection, his wealth will be made like a bald-headed poisonous male snake with two black spots over the eyes (or two poisonous glands in its mouth). The snake will encircle his neck and bite his cheeks and say, ‘I am your wealth, I am your treasure’.” Sahih Al Bukhari 1403 (Vol 2:486) 
The history of zakah is the same as that of the prayer. It is evident from the Qur’an that like the prayer its directive always existed in the shariah (Islamic Law) of The Prophets (peace be upon Him). When the Almighty asked the Muslims to pay it, it was not something unknown to them. All the followers of the religion of Ibraheem (Peace be upon Him) were fully ware of it. For this very reason the Qur’an has called it “a specified right” Qur’an.Surah Maarij 70:24
Thus it was a pre-existing sunnah which The Prophet Muhammad (May Allah honor Him and grant Him peace), with necessary reformations, gave currency at the behest of the Almighty. The Qur’an says that just as the Prophet Ishmael (Peace be upon Him) directed his household to offer the prayer, he also directed them to pay zakah “He would instruct his family to pray and to give zakah and his Lord was pleased with him”Qur’an.Surah Maryam 19:55. The Almighty pledged a promise with the Israelites in the words: “I am with you if you are diligent in the prayer and pay zakah”. Qur’an.Surah Maidah 5:12
About The Prophets (peace be upon Him) that belong to the progeny of Isaac (Peace be upon Him) and Jacob (Peace be upon Him), the Qur’an says “And We sent them inspiration to do good deeds and to be diligent in the prayer and pay zakah” Qur’an.Surah Anbiya 21:73.The Prophet Eesa (Peace be upon Him) said about himself “And God has directed me offer the prayer and pay zakah as long as I live” Qur’an.Surah Maryam 19:31
The Almighty says in the Qur’an: “And [those among them] who were given the Book [before] became divided only after such a clear sign had come to them. And [in this Book also] they had been directed to worship Allah, obeying Him exclusively with sincere devotion and to be diligent in the prayer and to pay zakah [and the truth is that] this is the religion of the Upright Nation” Qur’an.Surah Bayyina 98:4-5
Although temporal love includes many things the most powerful and dangerous of all is the love of material wealth. The Prophet Muhammad (May Allah honor Him and grant Him peace) has, therefore, regarded it as the greatest of all evils for the Muslims: “The trial for my Ummah is wealth.” Tirmidhi 481, Mustadrak Hakim Vol 4: 318. If a Muslim can save himself from the lure of wealth, he will be able to protect himself from many other vices.
One secondary objective of the zakath is to provide basic necessities to poor Muslims. The Prophet Muhammad (May Allah honor Him and grant Him peace) said: “Verily Allah has ordained the payment of Zakath on them (Muslims). It will be taken from the rich and returned to the poor.” Sahih Muslim Vol 1:21. These Traditions make it quite obvious that there is also a social and economic aspect of the poor-due without which its Islamic concept remains incomplete.
The Prophet (peace be upon him) said: “Whoever is made wealthy by Allah and does not pay the Zakât of his wealth, then on the Day of Resurrection, his wealth will be made like a bald-headed poisonous male snake with two black spots over the eyes (or two poisonous glands in its mouth). The snake will encircle his neck and bite his cheeks and say, ‘I am your wealth, I am your treasure’.” Sahih Al Bhukari 1403 (Vol 2:486)  
Zakah is obligatory after a time span of one lunar year passes with the particular amount in the control of its owner which is called as Nisab in Islam. Then the owner needs to pay 2.5% (or 1/40) of the money as Zakah. 
There are two forms of charity in Islam - obligatory and voluntary, called as zakath 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.
Apart from zakath, the Qur’an and Hadeeth (traditons, Saying and actions of Muhammad (May Allah honour Him and grant Him peace)) also stress sadaqah, or voluntary almsgiving, which is intended for the needy. 
Islamic command possesses plenty of advantages of which some are mentioned below:
1. It meets the needs of the poor of the society.
2. It strengthens the good relation between the rich and the poor, as everyone is naturally inclined towards the one who does good to him.
3. It purifies one’s self and sanctifies it; and it purges one’s moral of covetousness and miserliness; as is stated in the Qur’ân: “Take Sadaqa (alms) from their wealth in order to
purify them and sanctify them with it” (9:103).
4. It promotes open-handedness, generosity and sympathy in a Muslim towards the needy persons.
5. It draws Allah’s blessing; causes increase in wealth and the replacement of spent out; as Allah describes: “And whatsoever you spend of anything (in Allah’s cause), He will replace it. He is the Best of those Who grant Sustenance.” (34:39).