ISLAMABAD: The Federal Board of Revenue (FBR) has retained the provision allowing taxpayers to claim a deductible allowance for Zakat paid during Tax Year 2027, subject to the conditions prescribed under the Income Tax Ordinance, 2001.
The FBR has issued the Income Tax Ordinance, 2001, updated up to June 30, 2026, for Tax Year 2027, setting out the applicable provisions for taxpayers.
Zakat deduction under Section 60
Under Section 60 of the Income Tax Ordinance, 2001, a person is entitled to a deductible allowance for the amount of any Zakat paid during a tax year under the Zakat and Ushr Ordinance, 1980.
The provision applies to Zakat paid during the relevant tax year in accordance with the applicable Zakat law.
However, Section 60(2) states that the provision does not apply to any Zakat amount already taken into account under sub-section (2) of Section 40 of the Income Tax Ordinance, 2001.
Unused Zakat allowance cannot be carried forward
The FBR has also specified how any unused Zakat allowance is treated.
Under Section 60(3), an allowance or part of an allowance available under Section 60 for a tax year that cannot be deducted under Section 9 for that year cannot be refunded.
The unused amount also cannot be carried forward to a subsequent tax year or carried back to a preceding tax year.
The provision therefore limits the Zakat deduction to the relevant tax year, subject to the applicable requirements of the Income Tax Ordinance.
Workers’ Welfare Fund deduction
The updated Income Tax Ordinance also contains Section 60A, which deals with deductions relating to the Workers’ Welfare Fund.
Under this provision, a person is entitled to a deductible allowance for the amount of Workers’ Welfare Fund paid during a tax year under the Workers’ Welfare Fund Ordinance, 1971, or under provincial legislation concerning the Workers’ Welfare Fund enacted following the Eighteenth Constitutional Amendment Act, 2010.
However, Section 60A does not apply to Workers’ Welfare Fund amounts paid to the provinces by a trans-provincial establishment.
Workers’ Participation Fund deduction
Similarly, Section 60B provides a deductible allowance for Workers’ Participation Fund paid during a tax year in accordance with the Companies Profit (Workers’ Participation) Act, 1968, or relevant provincial legislation enacted following the Eighteenth Constitutional Amendment.
The provision also excludes amounts of Workers’ Profit Participation Fund paid to a province by a trans-provincial establishment.
Tax deductions applicable for Tax Year 2027
The updated Income Tax Ordinance provides the applicable framework for deductions relating to Zakat, Workers’ Welfare Fund and Workers’ Participation Fund for Tax Year 2027.
Taxpayers claiming these deductions must meet the requirements and conditions prescribed under the relevant provisions of the Income Tax Ordinance, 2001.
