The Income Tax Ordinance, 2001 explains how charitable donations are treated for tax purposes in the tax year 2025-26. Section 61 provides details about who can claim a tax credit and how the amount is calculated.
A person can claim a tax credit for any money paid or property given as a donation to:
• Any board of education or university set up by law in Pakistan.
• Any school, hospital, or relief fund run by the federal, provincial, or local government.
• Non-profit organizations or entities eligible under Section 100C.
• Specific organizations and funds listed in the Thirteenth Schedule.
The tax credit for donations is calculated using a formula:
(A/B) × C
• A is the tax assessed before any tax credits.
• B is the person’s taxable income.
• C is the lesser of:
o The total value of donations given in the year (including property at fair market value), or
o A percentage of taxable income (30% for individuals and AOPs, 20% for companies).
If a donation is given to an associate, the limit reduces to 15% for individuals and AOPs, and 10% for companies.
The fair market value of property is calculated at the time it is given. For cash donations, the law requires payment through a crossed cheque for it to qualify.
This system ensures that charitable giving is encouraged while maintaining proper checks for tax compliance.
(This article is for general information only. It does not serve as tax or legal advice. For guidance on charitable donations and tax matters, please consult a qualified tax professional or the relevant authority.)