Karachi, November 24, 2025 – The Federal Board of Revenue (FBR) has outlined the rules and limits for tax credit on charitable donations for the tax year 2026 under the updated Income Tax Ordinance, 2021.
Taxpayers making donations to eligible organizations can now calculate their credit using the official formula provided by the FBR.
Eligible Donations for Tax Credit
According to Section 61 of the Income Tax Ordinance, 2001, individuals, associations, and companies can claim tax credit for donations made to:
1. Educational institutions – Boards of education or universities in Pakistan established under Federal or Provincial law.
2. Hospitals and relief funds – Institutions established or run by Federal, Provincial, or Local Governments.
3. Non-profit organizations – Entities or individuals eligible for tax credit under Section 100C of the Ordinance.
4. Other eligible entities – Organizations and funds listed in the Thirteenth Schedule of the Ordinance.
How Tax Credit is Calculated
The FBR formula to compute tax credit is as follows:
Tax Credit=AB×C\text{Tax Credit} = \frac{A}{B} \times CTax Credit=BA×C
Where:
• A = Tax assessed for the year before any tax credit
• B = Taxable income for the year
• C = Lesser of:
o Total donations made during the year (including the fair market value of donated property), or
o A fixed percentage of taxable income:
Individuals or associations: 30% of taxable income
Companies: 20% of taxable income
Special Rules:
• Donations made to an associate:
o Individuals/associations: 15% of taxable income
o Companies: 10% of taxable income
• The fair market value of property is calculated at the time of donation.
• Cash donations qualify only if paid via crossed cheque through a bank.
FBR Oversight
The FBR may issue additional rules to regulate approval procedures and other operational matters related to charitable donations and tax credits.
This initiative aims to encourage philanthropy while providing tangible tax benefits to donors across Pakistan.
Disclaimer: This article is for informational purposes only. Taxpayers should consult the FBR or a certified tax professional for advice specific to their situation.