Eligible taxpayers can claim tax credits on qualifying donations, voluntary contributions and subscriptions subject to prescribed limits and conditions.
ISLAMABAD: Taxpayers can claim a tax credit on eligible charitable donations made during Tax Year 2027 under Section 61 of the Income Tax Ordinance, 2001, updated up to June 30, 2026.
The Federal Board of Revenue (FBR) has outlined the conditions, eligible recipients and limits applicable to tax credits on donations, voluntary contributions and subscriptions made to qualifying institutions and organisations.
Donations eligible for tax credit
Under Section 61, a person is entitled to a tax credit for any amount paid or property given as a donation, voluntary contribution or subscription during the tax year to specified entities.
Eligible recipients include:
• Any board of education or university in Pakistan established by or under federal or provincial law;
• An educational institution, hospital or relief fund established or operated in Pakistan by the Federal Government, a provincial government or a local government;
• Any non-profit organisation or person eligible for tax credit under Section 100C of the Income Tax Ordinance; and
• Entities, organisations and funds listed in the Thirteenth Schedule of the Income Tax Ordinance.
How charitable donation tax credit is calculated
The tax credit under Section 61 is calculated using the following formula:
(A/B) × C
Under the formula:
• A represents the tax assessed on the person for the tax year before allowing any tax credit under the relevant provisions;
• B represents the person’s taxable income for the tax year; and
• C represents the lesser of the total eligible donations made during the year, including the fair market value of donated property, or the applicable percentage of taxable income.
For an individual or association of persons, the amount considered under component C is limited to 30% of taxable income.
For a company, the applicable limit is 20% of taxable income.
Lower limits apply to donations to associates
The law provides lower limits where a donation is made to an associate.
In such cases, the amount considered under component C is restricted to:
• 15% of taxable income for an individual or association of persons; and
• 10% of taxable income for a company.
These limits apply where a sum is paid or property is given to an associate by the donor.
Fair market value of donated property
Where a taxpayer donates property, its fair market value is taken into account when calculating the tax credit.
The value of the donated property is determined at the time it is given.
The provision therefore covers both monetary donations and qualifying property donations, subject to the conditions and limits prescribed under Section 61.
Cash donations must be paid by crossed cheque
The FBR has also prescribed a payment requirement for cash donations.
A cash amount paid as a donation can be included in the tax credit calculation only where it is paid through a crossed cheque drawn on a bank.
Taxpayers claiming a charitable donation tax credit should therefore ensure that monetary donations meet the prescribed payment conditions.
FBR may prescribe procedures
Section 61 also authorises the FBR to make rules governing the procedure for granting approval under the relevant provisions of Section 2(36).
The Board may also prescribe rules concerning other matters connected with or incidental to the operation of the charitable donation tax credit provisions.
Tax credit available for qualifying donations in Tax Year 2027
The provisions establish the framework for eligible taxpayers to claim tax credits on qualifying charitable donations, voluntary contributions and subscriptions during Tax Year 2027.
Taxpayers should ensure that donations are made to eligible recipients and comply with the applicable income-based limits, payment requirements and other conditions before claiming the tax credit.