Taxpayers in Pakistan may claim a tax credit on qualifying charitable donations under Section 61 of the Income Tax Ordinance, 2001. The provision applies to eligible donations made during the relevant tax year to specified organisations and institutions.
Which Donations Qualify for a Tax Credit?
Under Section 61, qualifying donations may include payments or property given to:
- Boards of education or universities established under Federal or Provincial law
- Educational institutions, hospitals and relief funds established or operated by Federal, Provincial or Local Governments
- Eligible non-profit organisations
- Persons eligible for tax credit under Section 100C
- Organisations, entities and funds listed in the Thirteenth Schedule
How Is the Tax Credit Calculated?
The tax credit is calculated using the statutory formula:
Tax Credit = (A ÷ B) × C
Where:
- A = Tax assessed before the applicable tax credit
- B = Taxable income for the tax year
- C = The lesser of the qualifying donation or the prescribed percentage of taxable income
For individuals and associations of persons, the general limit is 30% of taxable income, while the limit for companies is 20%. Special lower limits apply where donations are made to an associate.
Cash Donations Must Meet Payment Requirements
Taxpayers should maintain proper evidence of qualifying donations. Under Section 61, a cash donation is taken into account only when it is paid through a crossed cheque drawn on a bank, subject to the applicable law and requirements.
For donations made in the form of property, the law considers its fair market value at the time of donation when calculating the eligible amount.
What Should Taxpayers Keep?
Individuals and businesses claiming a charitable donation tax credit should retain appropriate documentation, including:
- Donation receipts
- Bank payment records
- Details of the recipient organisation
- Evidence supporting the value of donated property, where applicable
- Relevant tax records
Proper documentation can help support the claim during tax return preparation or any subsequent tax review.
Key Takeaway
Pakistan’s tax framework provides a tax credit for qualifying charitable donations under Section 61. For Tax Year 2027, taxpayers should verify that the recipient is eligible, the donation meets the prescribed requirements, and adequate payment and supporting records are maintained.
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Disclaimer
This article is provided for general informational purposes only and does not constitute legal, tax, financial or professional advice. Tax laws, rules and FBR policies may change from time to time. Readers should consult a qualified tax or legal professional regarding their specific circumstances before taking any action. Xact Legal does not accept liability for any action taken solely on the basis of this information.