Taxation of Non Profit Organization (NPO)

Taxation of Non Profit Organization Income Tax Ordinance, 2001: Section 2(36) “non-profit organization” means any person other than an individual, which is —

1. a) established for religious, educational, charitable, welfare purposes for general public, or for the
   promotion of an amateur sport;
2. b) formed and registered by or under any law as a non-profit organization;
3. c) approved by the Commissioner for specified period, on an application made by such person in the
   prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner; and none of the assets of such person confers, or may confer, a private benefit to any other person;

Section 61(1). Tax Credit for Charitable donations voluntary contribution or subscription:

1. a) any board of education or any university in Pakistan established by, or under, a Federal or a Provincial law;
2. b) any educational institution, hospital or relief fund established or run in Pakistan by Federal, Provincial or a Local Government; or
3. c) any non-profit organization. or any person eligible for tax .credit under section 100C
4. d) entities, organizations and funds mentioned in the Thirteenth Schedule to this Ordinance 61(2) amount of a person’s tax credit allowed shall be calculated as follows;

Lower of Amount of donation or FMV of donated property or 30% (20% if company) of taxable income x tax assessed / taxable income.

If donation given to an associate, Amount of donation, FMV of donated property or 15% (10% if company) of taxable income x tax assessed / taxable income.

61(4) Tax credit shall be allowed if amount paid through crossed cheque.

Section 100C. Tax credit for charitable organizations (1) allowed a tax credit equal to 100% of tax payable

(2) The provisions of this section shall apply to the following persons, namely:—:

1. a) persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;
   b) a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of carrying out activities as welfare of ex-employees and serving personnel of the Federal or Provincial Government or armed forces and their dependents where the said trust is administered by a committee nominated by the Federal or a Provincial Government;
2. c) a trust;
3. d) a welfare institution registered with Provincial Or Islamabad Capital Territory (ICT) social welfare department;
4. e) a not for profit company registered with the SECP under section 42 of the Companies Act, 2017;
5. f) a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;
6. g) a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;
7. h) a university or education institutions being run by non-profit organization existing solely for educational purposes and not for the purposes of profit;
8. i) a religious or charitable institution for the benefit of public registered under any law; and
9. j) international non-governmental organizations (ING0s) approved by the Federal Government.

(3) The following income is eligible for tax credit, namely:—

1. a) income from donations, voluntary contributions and subscriptions;
2. b) income from house property;
3. c) income from investments in the securities of the Federal Government;
4. d) profit on debt from scheduled banks and microfinance banks;
5. e) grant received from Federal, Provincial, Local or foreign Government;
6. f) so much of the income chargeable under the head “income from business” as is expended in

Pakistan for the purposes of carrying out welfare activities: Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

1. g) any income of the persons mentioned in clauses (a), (b) and (h) of sub-section (2) of this

(4) Eligibility for tax credit shall be subject to the following conditions, namely:a) return has been filed;

1. b) tax required to be deducted or collected has been deducted or collected and paid; c) withholding tax statements for the relevant tax year have been filed;
2. d) the administrative and management expenditure does not exceed 15% of the total receipts:

Provided that clause (d) shall not apply to a non-profit organization, if-

(i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or

(ii) total receipts of the non-profit organization during the tax year are less than Rs. 100 million
e) approval of Commissioner has been obtained as per requirement of section 2(36): Provided that the condition of approval in respect of persons mentioned in Table II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the July 01, 2022 and the requirements of section 2(36), shall not be applicable for earlier years;

1. f) none of the assets of trusts or welfare institution: confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person: Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and
2. g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.

Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of 10%.

6. 6. For the purpose of sub-section (5), surplus funds mean funds or monies —
7. a) not spent on charitable and welfare activities during the tax year;
8. b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;
9. c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and
10. d) are not part of restricted funds.

Explanation.- For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.”;

Section 80(2)(b) “company” means — (va) a non-profit organization;

Section 114. Return of income. — (1) Persons are required to furnish a return of income:-

(ac) any non-profit organization as defined in section 2(36);

Section 114A. Taxpayer’s profile.-(1) Persons shall furnish a profile, namely:-

(d) any non-profit organization as defined in section 2(36);

Section 153(7) Prescribed persons to withhold tax for supply of goods, services or contracts u/s 152(2A) or 153(1);

(d) a non-profit organization;

Section 155. Prescribed persons to withhold tax against payment of Rent u/s 155;

3 (v) a non-profit organization or a charitable institution;

Second Schedule, Part IV

EXEMPTION FROM SPECIFIC PROVISIONS

Clause (11A) The provisions of section 113, regarding minimum tax, shall not apply to,-

(ix) non-profit organizations approved u/s 2(36) or clause (58) or included in clause (61) of Part-I of this Schedule;

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