Fiscal year 2025-26 ended on 30 June 2026, so the credits and deductions for tax year 2026 are now fixed. Only what you actually paid between 1 July 2025 and 30 June 2026 counts, and you claim it on the return you are filing now. For salaried individuals that return is due on 30 September 2026, unless FBR extends it. A donation or investment you make today can't reduce your tax year 2026 tax, but it can reduce your tax for tax year 2027, provided you make it before 30 June 2027. This guide covers both: what to claim now, and what to plan for next year.
Deductions and credits: the difference
- A deductible allowance (such as Zakat) is subtracted from your taxable income before tax is worked out.
- A tax credit (such as the credit for approved donations or pension contributions) reduces the tax itself. Most credits are worked out at your average rate of tax: your tax divided by your taxable income. That rate is then applied to the eligible amount.
Both need proof. Keep receipts, bank certificates and fund statements. FBR can ask for them after you file.
What you can claim on your tax year 2026 return
Zakat
Zakat paid under the Zakat and Ushr Ordinance, 1980 is a deductible allowance, taken off your taxable income (section 60 of the Income Tax Ordinance, 2001). This includes Zakat deducted by your bank. Keep the bank's deduction certificate or your payment receipts.
Donations to approved institutions
Donations to approved non-profit organisations, welfare institutions, hospitals and educational institutions earn a tax credit (section 61 of the Income Tax Ordinance, 2001). For individuals, the credit is your average rate of tax applied to the lower of what you donated and 30% of your taxable income. The institution must be approved for this purpose, so check its status before you claim, and keep the receipt.
Approved pension fund contributions
Contributions to an approved pension fund under the Voluntary Pension System earn a tax credit (section 63 of the Income Tax Ordinance, 2001). The credit is your average rate of tax applied to your contribution, up to 20% of your taxable income for the year. Keep the fund's statement of your contributions, because you need it to claim.
New shares and life insurance
The Income Tax Ordinance has also offered credits for investment in newly issued shares of listed companies and for life insurance premiums. These credits have been amended several times, so check the current limits and conditions for the tax year you are filing before you rely on either.
Health insurance
Health insurance premiums can also qualify for a tax credit, subject to limits and conditions. Check the current limit before you claim.
Tax already deducted from you
This is the item most people under-claim. Adjustable withholding tax deducted from you by your employer, bank and others counts against your final liability. Some withholding taxes are final and can't be claimed back, so check each certificate. If more adjustable tax was deducted than you owe, the return shows a refund. Enter every certificate.
A worked example (tax year 2026, salaried)
Take a salaried person with taxable income of Rs 3,000,000 in tax year 2026:
- Tax on the tax year 2026 slabs: Rs 116,000 + 23% of the Rs 800,000 above Rs 2,200,000 = Rs 300,000
- Average rate of tax: Rs 300,000 ÷ Rs 3,000,000 = 10%
- Rs 100,000 donated to an approved institution (well under the 30% cap) gives a credit of 10% × Rs 100,000 = Rs 10,000
- Rs 200,000 contributed to an approved pension fund (under the 20% cap) gives a credit of 10% × Rs 200,000 = Rs 20,000
- Tax after credits: Rs 270,000, before deducting tax already withheld by the employer
This is a simplified illustration. IRIS works out your credits from your actual figures when you file. To see the tax on your own salary before any credits, use our income tax calculator.
Tips for SMEs and business owners
Most of a business's legitimate savings come from claiming what it is entitled to, and from avoiding the rules that cause expenses to be disallowed:
- Claim all legitimate business expenses, such as salaries, rent, utilities, marketing, professional fees, repairs and interest on business loans. Keep invoices that prove each one. Our guide to deductible business expenses covers what counts.
- Claim depreciation on business assets at the prescribed rates.
- Get withholding tax right. If you deduct tax on payments to suppliers, staff or landlords, deduct it, deposit it and file the statements on time. Failing to do so can lead to penalties, and the related expense can be disallowed, which costs far more than the tax itself.
- Workers' Welfare Fund and Workers' Participation Fund contributions are generally deductible where they apply to your business.
- Check whether you qualify as a small company. Small companies can get a reduced rate if they meet the criteria. Confirm the current conditions before you rely on it.
- Claim input sales tax on eligible purchases if you are registered for sales tax, and keep every purchase invoice.
- Keep proper books: ledgers, cash book, bank reconciliations and inventory records. They are a legal requirement, and your best defence if FBR queries your return.
Planning for tax year 2027 (before 30 June 2027)
The new fiscal year started on 1 July 2026. Here is how to set yourself up:
- Know the new salaried slabs. Budget 2026-27 set out new salaried slabs for tax year 2027 and abolished the salaried surcharge. See what Budget 2026-27 means for salaried tax and the slab tables.
- Don't assume last year's limits. Before you commit money to an investment for the tax benefit, check that the credit still exists in the same form for tax year 2027 and what its limit is.
- Spread donations and pension contributions through the year rather than rushing in June. Only payments made by 30 June 2027 count for tax year 2027.
- Keep a folder for proof as you go: donation receipts, pension certificates, Zakat certificates, withholding tax certificates and investment confirmations.
- Business owners: plan your advance tax. If you have business income, quarterly advance tax instalments apply. Estimate honestly and adjust if your income changes. See our advance tax guide.
- File tax year 2026 on time. Staying on the Active Taxpayers List means lower withholding tax on banking, property and vehicle transactions all year. The return filing deadline guide covers how to file.
Frequently asked questions
Can I still invest or donate now to cut my tax year 2026 tax?
No. Only amounts paid by 30 June 2026 count for tax year 2026. Anything you pay now counts towards tax year 2027.
What is the average rate of tax?
It is your tax divided by your taxable income. Most credits, including those for donations and pension contributions, are calculated at this rate. The higher your income, the more each rupee you claim saves.
Is Zakat deducted by my bank deductible?
Yes. Zakat paid under the Zakat and Ushr Ordinance, 1980 is deductible from taxable income. Keep the bank's deduction certificate.
I forgot to claim a credit on a return I already filed. What can I do?
If you have the proof, you can file a revised return. Conditions apply, so an adviser can help.
This is general information. Tax rules and limits change every budget, so check FBR's current notifications or ask a tax adviser about your own case.