Section 100C of Income Tax Ordinance, 2001 has allowed tax credit to charitable organizations. The Federal Board of Revenue (FBR) issued the updated Income Tax Ordinance, 2001. The Ordinance incorporated amendments brought through Finance Act, 2021.
Following is the text of Section 100C of the Income Tax Ordinance, 2001.
100C. Tax credit for charitable organizations.— (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in subsection (4).
(2) The provisions of this section shall apply to the following persons, namely:—
(a) persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;
(b) a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;
(c) a trust;
(d) a welfare institution registered with Provincial or Islamabad Capital Territory (ICT) social welfare department;
(e) a not for profit company registered with the Securities and Exchange Commission of Pakistan under section 42 of the Companies Act, 2017;
(f) a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;
(g) a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;
(h) a university or education institutions being run by nonprofit organization existing solely for educational purposes and not for the purposes of profit;
(i) a religious or charitable institution for the benefit of public registered under any law for the time being in force; and
(j) international non-governmental organizations (INGOs) approved by the Federal Government.
(3) The following income is eligible for tax credit, namely:—
(a) income from donations, voluntary contributions and subscriptions;
(b) income from house property;
(c) income from investments in the securities of the Federal Government;
(d) profit on debt from scheduled banks and microfinance banks;
(e) grant received from Federal, Provincial, Local or foreign Government;
(f) so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:
Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and
(g) any income of the persons mentioned in clauses (a), (b) and (h) of sub- section (2) of this section.
(4) Eligibility for tax credit shall be subject to the following conditions, namely:—
(a) return has been filed;
(b) tax required to be deducted or collected has been deducted or collected and paid;
(c) withholding tax statements for the relevant tax year have been filed;
(d) the administrative and management expenditure does not exceed 15% of the total receipts:
Provided that clause (d) shall not apply to a nonprofit organization, if—
(i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or
(ii) total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;
(e) approval of Commissioner has been obtained as per requirement of clause (36) of section 2:
Provided that the condition of approval in respect of persons mentioned in Table-II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, 2022 and the requirements of clause (36) of section 2, shall not be applicable for earlier years;
(f) none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person:
Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and
(g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.
(5) Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of ten percent.
(6) For the purpose of sub-section (5), surplus funds mean funds or monies—
(a) not spent on charitable and welfare activities during the tax year;
(b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;
(c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and
(d) are not part of restricted funds.
Explanation.—For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.
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