In a move to encourage philanthropy and support charitable causes, Section 61 of the Income Tax Ordinance, 2001 allows individuals and entities in Pakistan to claim a tax credit for charitable donations.
The Federal Board of Revenue (FBR) recently updated the Income Tax Ordinance, incorporating amendments made through the Finance Act, 2021, up to June 30, 2021.
Understanding Section 61:
Section 61 outlines the eligibility criteria and the process for claiming tax credits related to charitable donations. According to the text of the section, a person is entitled to a tax credit for any sum paid or property given as a donation, voluntary contribution, or subscription to specified entities. These entities include boards of education, universities, educational institutions, hospitals, relief funds established by the federal, provincial, or local governments, non-profit organizations, and individuals eligible for tax credit under section 100C of the Ordinance.
Computation of Tax Credit:
The amount of a person’s tax credit under Section 61 is calculated using a formula outlined in the ordinance. The formula takes into account the total amount of donations made by the person during the tax year, including the fair market value of any property given. The tax credit is then determined based on the assessed tax, taxable income, and a percentage of the total donations, with specific percentages for individuals or associations of persons and companies.
Conditions for Cash Donations:
For cash donations to be considered for tax credit under Section 61, they must be paid by a crossed cheque drawn on a bank. This condition aims to ensure transparency and traceability in financial transactions related to charitable contributions.
Provisions for Associates:
The ordinance includes provisions for associates who receive donations. In such cases, the tax credit percentage is adjusted based on the relationship between the donor and the associate. The percentages vary for individuals or associations of persons and companies, providing a nuanced approach to tax credit calculations.
Fair Market Value Determination:
To calculate the fair market value of any property given as a donation, Section 61 specifies that it should be determined at the time of donation. This ensures a fair and accurate assessment of the value of non-cash contributions.
Regulatory Authority:
The Federal Board of Revenue is empowered to make rules regulating the procedure of granting approval and other matters connected with the operation of Section 61. This includes the approval process for entities eligible for tax credit under specific clauses of the ordinance.
Disclaimer:
It’s important to note that the provided text of Section 61 is for informational purposes. While efforts are made to provide the correct version of the text, errors or omissions may occur. The responsibility for any discrepancies lies with the concerned parties.
In summary, Section 61 of the Income Tax Ordinance, 2001 plays a pivotal role in promoting charitable contributions by providing a mechanism for individuals and entities to benefit from tax credits, ultimately contributing to the betterment of society.