Charitable giving is deeply embedded in Pakistan’s social and economic fabric. Recognizing its importance, the Income Tax Ordinance, 2001 provides generous tax incentives to individuals, AOPs, and companies who contribute to approved charitable organizations.
Section 61 grants a tax credit to taxpayers who donate money or property to specific educational, relief, governmental, and nonprofit entities. Understanding how this tax credit works — and how to document it — is essential for maximizing tax benefits while maintaining legal compliance.
Exact Legal Text of Section 61 – Charitable Donations
“61. Charitable donations.- (1) A person shall be entitled to a tax credit in respect of any sum paid, or any property given by the person in the tax year as a donation, voluntary contribution or subscription to
(a) any board of education or any university in Pakistan established by, or under, a Federal or Provincial law;
(b) any educational institution, hospital or relief fund established or run in Pakistan by Federal Government, a Provincial Government or a Local Government;
(c) any non-profit organization or any person eligible for tax credit under section 100C of this Ordinance; or
(d) entities, organizations and funds mentioned in the Thirteenth Schedule to this Ordinance.(2) The amount of tax credit allowed to a person shall be computed by the formula:
(A/B)×C(A/B) × C(3) The fair market value of property donated shall be determined at the time it is given.
(4) Donations must be paid via crossed cheque to qualify.
(5) The Board may make rules regarding approvals under Section 2(36)(c) and related matters.”
Understanding Section 61 – What It Means for Taxpayers
Section 61 provides a direct tax credit, not a deduction. This means your taxable liability is reduced, not your taxable income. It is one of the most taxpayer-friendly incentives available in Pakistani tax law.
1. Who Is Eligible to Claim Tax Credit?
Any taxpayer:
Individual
AOP / Partnership
Company
…can claim a tax credit if a qualifying donation is made during the tax year.
2. Eligible Donee Organizations
Tax credit is available for donations made to:
✔ Government educational institutions
✔ Public universities
✔ Government-run hospitals or relief funds
✔ Non-profit organizations (NPOs) approved under Section 2(36)(c)
✔ Any entity or fund listed in the Thirteenth Schedule
✔ Any organization eligible under Section 100C
3. The Formula for Computing Tax Credit
Tax credit is calculated using this statutory formula:
Tax Credit=(AB)×C\text{Tax Credit} = \left(\frac{A}{B}\right) × C
Where:
A = Tax assessed before credits
B = Taxable income
C = Lesser of:
Total donation amount (or fair market value of property), or
Donation limit based on entity type:
Individuals/AOP: 30% of taxable income
Companies: 20% of taxable income
Reduced Limits for Donations to Associates
If the donation is made to an associate:
Individual/AOP → 15% limit
Company → 10% limit
4. Requirements for Eligibility
To legally qualify:
Cash donations must be paid via crossed cheque
Donation must be made within the tax year
Donor must retain original receipt
Donations in property must reflect fair market value
5. Valuation of Property Donations
Under Section 61(3), the fair market value is determined at the time the property is given.
Examples:
Land: valuation by DHA, FBR, or Pakistan Banks’ Association
Vehicles: approved valuation chart
Inventory: cost or market value, whichever is lower
6. Documentation Required
A valid claim requires:
Official donation receipt
Crossed cheque or bank proof
Donee’s NTN and approval under Section 2(36)(c) or Section 100C
Proof of FMV for property donations
7. Example Calculation
A company has:
Taxable income: PKR 10,000,000
Tax liability before credits: PKR 2,000,000
Donation made: PKR 3,000,000
Step 1 — Identify allowable donation (C)
Company limit = 20%
20% of 10,000,000 = 2,000,000
C = 2,000,000
Step 2 — Apply formula
2,000,00010,000,000×2,000,000=400,000\frac{2,000,000}{10,000,000} × 2,000,000 = 400,000
Tax credit allowable = PKR 400,000
8. Why Section 61 Matters
Encourages social welfare
Helps nonprofits survive
Allows taxpayers to reduce their tax burden legally
Ensures proper documentation through banking channels
Promotes financial transparency
Section 61 is one of the most beneficial tax credit provisions, enabling taxpayers to support society while receiving legitimate tax relief. Whether donating to hospitals, universities, or nonprofit organizations, structured compliance ensures your tax benefits remain fully protected.
At Tanweer Habib & Co., we assist individuals and businesses in:
Evaluating eligible donations
Preparing Section 61 compliance documentation
Maximizing tax credits within the legal framework
FAQs on Section 61 – Charitable Donations
1. Who can claim tax credit under Section 61?
Individuals, AOPs, and companies can all claim this tax credit.
2. What types of donations qualify?
Cash donations via crossed cheque, property, and voluntary contributions.
3. Is Zakat included under Section 61?
Only if paid to an approved NPO or fund listed in the Thirteenth Schedule.
4. Are donations to foreign charities eligible?
No. Only donations within Pakistan qualify.
5. What is the maximum tax credit allowed?
Individuals/AOP: 30% of taxable income
Companies: 20%
6. What if donation is given to an associate?
Limits reduce to 15% (individual/AOP) and 10% (company).
7. Are cash donations allowed without banking channels?
No. Only crossed cheque payments qualify.
8. Are donations in kind allowed?
Yes — valued at fair market value at the time of giving.
9. Can I donate inventory from my business?
Yes, with proper valuation.
10. Do I need a receipt?
Yes, an original donation receipt is mandatory.
11. Can donation exceed taxable income?
Yes, but credit applies only within prescribed limits.
12. Is the tax credit refundable?
No — it only reduces tax liability.
13. Can I carry forward unused donation credit?
No, it must be used in the same tax year.
14. What entities are approved donees?
Government institutions, NPOs, Section 100C entities, and Thirteenth Schedule funds.
15. Do religious seminaries qualify?
Only if registered under Section 2(36)(c).
16. Can a company donate to its employee fund?
Only if that fund is an approved NPO.
17. Is donation to a private school eligible?
Only if it qualifies as an NPO under Section 2(36)(c).
18. Can I claim tax credit for charity events?
Only if the payment qualifies as a donation under the law.
19. Should I declare donations in my return?
Yes, separately in the Tax Credits section of IRIS.
20. How does Section 61 differ from Section 100C?
Section 61 gives credit to donors; Section 100C gives exemption to NPOs.
