Introduction
Philanthropy not only contributes to social welfare but also offers tangible tax relief for donors in Pakistan. Section 61 of the Income Tax Ordinance, 2001 provides a tax credit to individuals, associations of persons (AOPs), and companies making charitable donations to approved institutions, organizations, and funds. This section encourages a culture of giving while ensuring transparency through regulated mechanisms.
Understanding Section 61: Charitable Donations
Section 61 allows a tax credit for any sum paid or property donated in Pakistan to:
Any board of education or university established under federal or provincial law.
Any educational institution, hospital, or relief fund established or managed by the federal, provincial, or local government.
Any non-profit organization or person eligible for tax credit under Section 100C.
Entities, organizations, and funds listed in the Thirteenth Schedule of the Ordinance.
This ensures that donations go to recognized and regulated institutions working for education, health, relief, and welfare.
Computation of the Tax Credit
The tax credit is calculated using the following formula:
Tax Credit=(AB)×C\text{Tax Credit} = \left(\frac{A}{B}\right) \times C
Where:
A = Tax assessed before any tax credit under Part X.
B = Taxable income for the year.
C = The lesser of:
The amount donated (including fair market value of any property given); or
The prescribed percentage of taxable income.
Applicable Limits
Individuals or AOPs: 30 % of taxable income.
Companies: 20 % of taxable income.
However, if the donation is made to an associate, the allowable limit is reduced to:
Individuals or AOPs: 15 %.
Companies: 10 %.
Mode of Donation and Valuation
Donations must be paid through crossed cheque or bank transfer to be eligible.
The fair market value of donated property is determined at the time of transfer.
This prevents misuse and ensures traceable, verifiable contributions.
Regulatory Control by FBR
The Federal Board of Revenue (FBR) has authority to regulate and approve eligible institutions and to prescribe rules for granting tax credit approvals. This adds credibility and ensures that donations reach genuine entities.
Example: How the Tax Credit Works
Example 1:
Mr. Ali donates PKR 300,000 to a registered welfare trust. His taxable income is PKR 2,000,000, and tax assessed before credit is PKR 400,000.
Here:
A = 400,000
B = 2,000,000
C = 300,000 (less than 30 % of income, which is 600,000)
TaxCredit=(400,000/2,000,000)×300,000=60,000Tax Credit = (400,000 / 2,000,000) × 300,000 = 60,000
So, Mr. Ali gets a tax credit of PKR 60,000, reducing his final tax payable.
Importance of Section 61 for Taxpayers and Society
Encourages corporate social responsibility (CSR).
Promotes education, healthcare, and poverty alleviation.
Offers monetary relief for genuine donors.
Strengthens transparency and accountability in charitable giving.
Tips for Claiming Tax Credit Successfully
Donate only to approved and listed institutions.
Always retain receipts and proof of payment.
Use crossed cheques or bank instruments for all donations.
Ensure the donee organization has an FBR-issued approval.
Mention donation details clearly while filing your Income Tax Return in IRIS.
Section 61 embodies the government’s intent to incentivize charitable contributions while maintaining a transparent tax system. By properly documenting donations and ensuring payments are made through verifiable channels, taxpayers can lawfully reduce their tax liability and contribute meaningfully to Pakistan’s social development.
FAQs on Tax Credit for Charitable Donations (Section 61 of the Income Tax Ordinance, 2001)
1. What is Section 61 of the Income Tax Ordinance, 2001?
Section 61 allows taxpayers in Pakistan to claim a tax credit for donations made to approved charitable institutions, organizations, and funds established under the law.
2. Who can claim tax credit under Section 61?
Both individuals, associations of persons (AOPs), and companies registered in Pakistan can claim tax credit if they make eligible donations.
3. What types of donations qualify for a tax credit?
Donations can be made either in cash (via crossed cheque) or in the form of property. However, cash donations made without banking channels do not qualify for a tax credit.
4. To whom can I donate to avail the tax credit?
You can donate to:
Any board of education or university established under law.
Any hospital, relief fund, or institution run by Federal, Provincial, or Local Government.
Any non-profit organization (NPO) approved under Section 2(36)(c).
Entities or funds listed in the Thirteenth Schedule to the Ordinance.
5. How much tax credit can I claim on donations?
Individuals/AOPs: Up to 30% of taxable income.
Companies: Up to 20% of taxable income.
If the donation is made to an associate, the limits reduce to 15% and 10% respectively.
6. How is the tax credit calculated?
It follows the formula:
TaxCredit=(A/B)×CTax Credit = (A / B) × C
Where:
A = Tax assessed before tax credits.
B = Taxable income.
C = Donation amount or allowed percentage (whichever is less).
7. Can donations in kind (like property or goods) be claimed for tax credit?
Yes, provided the fair market value of the property is determined at the time of donation.
8. Are cash donations acceptable for tax credit?
No, unless the donation is made through a crossed cheque, bank draft, or electronic transfer traceable through the banking system.
9. Can I claim a tax credit for donations made abroad?
No, Section 61 applies only to donations made within Pakistan to approved entities under local law.
10. Can an unregistered charity or welfare trust qualify for donation credit?
No. Only approved institutions registered with FBR and listed in the relevant schedules qualify for tax credit purposes.
11. Is Zakat considered a charitable donation for tax credit?
Zakat paid to an approved Zakat fund or organization listed in the Thirteenth Schedule may qualify; however, individual Zakat payments not made through such entities do not.
12. Can I claim donations made in previous years?
No, tax credit can only be claimed for donations made during the relevant tax year in which they were paid or transferred.
13. What documents are required to claim the tax credit?
You must retain:
Original receipt from the donee organization.
Copy of crossed cheque or bank transfer proof.
Details of the organization’s approval number issued by FBR.
14. Do I need to declare my donation in my income tax return?
Yes, you must mention the name of the organization, amount donated, and date of payment in your annual income tax return (IRIS system) to claim the credit.
15. How does the FBR verify charitable donations?
The FBR may cross-check payment details, verify the institution’s approval status, and ensure compliance with Section 100C and the Thirteenth Schedule before granting credit.
16. Can companies claim tax credit under Section 61 for CSR contributions?
Yes, provided the company donates to approved charitable institutions. CSR donations to non-approved bodies will not qualify for tax credit.
17. Can a taxpayer donate to an associate organization and still claim tax credit?
Yes, but the limit is reduced:
Individuals/AOPs → 15% of taxable income.
Companies → 10% of taxable income.
18. Are religious trusts or madrassas eligible institutions?
Only those registered as NPOs and approved by FBR under Section 2(36)(c) or Section 100C are eligible for donation-related tax credits.
19. What happens if a taxpayer overstates a donation claim?
Overstated or unverified donations may lead to disallowance of credit, reassessment, and even penalties under Section 182 of the Ordinance.
20. Why is Section 61 important for taxpayers and society?
It promotes charitable giving, supports education, health, and welfare sectors, and enables taxpayers to reduce their tax liability while fulfilling their social responsibility.
