FBR revises exemption certificate rules for Tax Year 2027, linking eligibility to a 90% income distribution requirement and formal approval status.
ISLAMABAD: The Federal Board of Revenue (FBR) has revised the rules governing the issuance of income tax exemption certificates for Tax Year 2027, introducing new eligibility conditions for specified persons and approved not-for-profit organisations.
The changes have been explained in Income Tax Circular No. 2 of 2026-27, issued to clarify major amendments to the Income Tax Ordinance, 2001 introduced through the Finance Act, 2026.
According to the FBR, amendments have been made to Section 159 to streamline the issuance of exemption certificates for persons covered under clauses (99) and (99C) of Part I of the Second Schedule, as well as not-for-profit organisations approved under Section 2(36)(c) of the Ordinance.
For this purpose, the FBR has introduced sub-sections (1C) and (1D) in Section 159.
90% income distribution requirement
Under newly introduced sub-section (1C), a person will qualify for an exemption certificate for the subsequent tax year if they distributed 90% or more of their accounting income in accordance with clauses (99) and (99C) of Part I of the Second Schedule during the immediately preceding tax year.
The requirement links eligibility for the exemption certificate to the taxpayer’s compliance with the prescribed income-distribution condition.
Where a person has no preceding tax year because they have commenced business for the first time, the exemption certificate will instead be issued on the basis of an undertaking submitted to the Commissioner.
Under the undertaking, the person must commit to distributing the required 90% or more of accounting income during the relevant tax year.
Certificates for approved not-for-profit organisations
The FBR has also introduced sub-section (1D) covering persons approved under sub-clause (c) of clause (36) of Section 2.
Under the new provision, a person granted such approval for a tax year will be eligible to receive an exemption certificate under Section 159(1) for the whole tax year.
This provides a clearer basis for issuing exemption certificates to approved not-for-profit organisations and links the benefit to their formal approval under the Income Tax Ordinance.
FBR clarifies exemption certificate eligibility
The amendments are intended to simplify the exemption certificate process for qualifying taxpayers and organisations while linking eligibility more clearly to prescribed income-distribution requirements and formal approval status.
The new framework also provides a specific mechanism for businesses commencing operations for the first time, allowing them to obtain an exemption certificate through an undertaking rather than relying on a previous year’s distribution record.
The latest changes form part of the broader tax reforms introduced through the Finance Act, 2026 and explained by the FBR in Income Tax Circular No. 2 of 2026-27.