Karachi, September 12, 2024 – The Federal Board of Revenue (FBR) has announced that individuals and organizations making charitable donations during the tax year 2024-25 will be eligible to claim tax credits under the Income Tax Ordinance, 2001.
This provision, outlined in Section 61 of the Ordinance, allows taxpayers to reduce their tax liability based on contributions made to specific educational, healthcare, and non-profit organizations.
The FBR, in its updated version of the Income Tax Ordinance as of June 30, 2024, reiterated that the tax credit for charitable donations will remain applicable for the tax year 2024-25. This initiative is designed to incentivize philanthropy and provide financial relief to individuals and companies supporting worthy causes across Pakistan.
Eligibility for Tax Credit
Under Section 61 of the Income Tax Ordinance, 2001, a taxpayer is entitled to a tax credit for donations made to:
1. Educational Boards and Universities: Donations made to any board of education or university established by federal or provincial law are eligible for the tax credit.
2. Government-Run Educational Institutions and Hospitals: Contributions to educational institutions, hospitals, or relief funds established or managed by the Federal Government, Provincial Government, or Local Government are included in the eligible donations.
3. Non-Profit Organizations: Donations to non-profit organizations that meet the criteria under Section 100C of the Ordinance, as well as entities listed in the Thirteenth Schedule of the Income Tax Ordinance, are also eligible.
Computation of Tax Credit
The amount of tax credit a taxpayer can claim is determined by a specific formula, which calculates the credit based on the person’s taxable income and the value of the donations made during the year. The formula for computing the tax credit is as follows:
(A/B)×C
Where:
• A is the tax assessed to the individual before the tax credit is applied.
• B is the taxpayer’s taxable income for the year.
• C is the lesser of:
o The total amount of donations (including the fair market value of any property given), or
o A fixed percentage of the taxable income:
30% for individuals and associations of persons.
20% for companies.
The law provides additional guidelines for donations made to associates. In such cases, the tax credit is capped at a lower rate: 15% for individuals and associations of persons, and 10% for companies.
Property Donations and Crossed Cheques
The law also specifies that when donations are made in the form of property, the fair market value of the property at the time it is donated will be used to calculate the tax credit. For cash donations to be eligible, the payment must be made through a crossed cheque drawn on a bank, ensuring a traceable and verifiable transaction.
FBR’s Role in Monitoring and Approval
The FBR retains the authority to regulate the procedure for granting approval for eligible organizations under Section 2(36)(c) of the Ordinance. This ensures that the organizations benefiting from these donations meet the necessary criteria and that the tax credit is only claimed for legitimate contributions.
Encouraging Charitable Giving
The provision of tax credits for charitable donations continues to play a significant role in encouraging philanthropic efforts across Pakistan. By offering financial incentives, the FBR aims to boost contributions to educational, healthcare, and non-profit sectors, helping to foster a culture of giving. The government, through this policy, seeks to not only support organizations working for the welfare of society but also provide relief to taxpayers contributing to these causes.
Taxpayers are encouraged to review their donations and ensure they meet the requirements set out under the Income Tax Ordinance to take full advantage of this beneficial scheme for the tax year 2024-25.
