Philanthropy holds a central place in both Islamic teachings and Pakistani culture. To promote charitable giving, Section 61 of the Income Tax Ordinance, 2001 provides generous tax credits to individuals, AOPs, and companies for eligible donations.
Whether you contribute to a university, a government hospital, or a nonprofit organization, your donations may reduce your tax liability substantially.
This blog explains the law, eligibility, formula, and practical examples for claiming tax credit on donations in Pakistan.
Legal Basis – What is Section 61?
Section 61 allows tax credits (not deductions) on donations, subscriptions, or voluntary contributions made by any taxpayer in a tax year, subject to limits and procedural conditions.
The donation must be made to an approved organization, and proof of payment is essential.
Who Can Claim the Tax Credit?
The following persons are eligible:
✅ Individuals
✅ Associations of Persons (AOPs)
✅ Companies
All must be resident taxpayers with taxable income in Pakistan.
Which Donations Qualify?
Eligible Recipients Under Section 61
Boards of education or universities established by Federal/Provincial law
Educational institutions, hospitals, or relief funds run by Federal, Provincial, or Local Governments
Non-Profit Organizations (NPOs) approved under Section 2(36) or eligible under Section 100C
Institutions listed in the Thirteenth Schedule of the Ordinance
How is the Tax Credit Calculated?
The tax credit is not based on the donation amount alone. It is calculated using the following formula:
(A / B) × C
Where:
A = Total tax assessed (before tax credits)
B = Total taxable income
C = Lesser of:
(a) Actual donation amount (including fair market value of donated property)
(b) Upper limit based on type of taxpayer:
Individual/AOP → 30% of taxable income
Company → 20% of taxable income
Special Rule for Donations to Associates:
If the donation is made to an associate, reduced limits apply:
Individual/AOP → 15% of taxable income
Company → 10% of taxable income
Payment Mode & Documentation
✅ Only crossed cheques are accepted for cash donations
Retain:
Donation receipts
Bank slip/proof of cheque
NTN/name of the recipient organization
Example: How to Compute the Tax Credit
Scenario:
Ms. Sara has a taxable income of PKR 3,000,000 and is assessed tax of PKR 100,000. She donates PKR 200,000 to a listed non-profit.
Now compute:
A = 100,000 (tax assessed)
B = 3,000,000 (taxable income)
C = lesser of:
a) PKR 200,000
b) 30% of 3,000,000 = 900,000
C = PKR 200,000
Tax credit = (100,000 / 3,000,000) × 200,000 = PKR 6,666
So, her tax liability reduces to PKR 93,334.
FAQs – Charitable Donations & Tax Credit (Section 61)
What is Section 61 about?
It provides tax credit on eligible charitable donations made during a tax year.Who is eligible to claim tax credit under Section 61?
Individuals, AOPs, and companies with taxable income in Pakistan.Which donations qualify?
Donations made to recognized institutions under federal/provincial law or listed NPOs.Can I claim tax credit for donations in cash?
Yes, only via crossed cheque. Cash donations without bank proof are not eligible.Are donations to mosques or madrassas eligible?
Only if they are listed under Thirteenth Schedule or approved NPOs.Is there a donation limit for individuals?
Yes, 30% of taxable income, or 15% if to an associate.Is the tax credit refundable if I have no tax due?
No, it only reduces existing tax liability—not refundable.Can donations be made in property or assets?
Yes. The fair market value at the time of donation is considered.What is an “associate”?
A related person or entity—e.g., family-run trusts or organizations.How do I claim this credit in IRIS?
Under the “Tax Credits” section > Charitable Donations (Section 61).Are donations to foreign charities allowed?
No. Only donations to Pakistan-based registered entities qualify.Can I claim donations to a hospital run by the provincial government?
Yes, as long as it’s established or run by a government.What if I donate to multiple institutions?
Add all qualifying donations, but stay within the maximum cap (30% or 20%).Can both spouses claim tax credit for the same donation?
Only the one who paid from their account can claim.Can I carry forward unused credit to next year?
No. Tax credits cannot be carried forward.Is online bank transfer considered valid payment?
Yes, if it’s traceable and goes to a verified organization’s account.Can I claim donation made to Edhi Foundation or Shaukat Khanum?
Yes, as they are listed in the Thirteenth Schedule.Can donations to a school fund for needy students be claimed?
Only if the school is government-run or a registered NPO.Are payroll deductions for charity eligible?
Yes, if the payment is traceable and directed to an eligible institution.How can I verify if an organization is listed?
Check the FBR website or the Thirteenth Schedule of the Ordinance.
Disclaimer:
This article is for informational and educational purposes only. It does not constitute legal or tax advice. For personal guidance, please consult a licensed tax professional or legal advisor. No liability is assumed for actions based on this content.
