Tax Credits and Deductible Allowances: Sections 60C, 61, 62, 63

Income Tax · Tax Year 2026

Tax Credits and Deductible Allowances You Are Probably Not Claiming: Sections 60C, 61, 62 and 63

Two of these four sections no longer exist. One has quietly returned in a new form. Here is what actually survives for Tax Year 2026 (1st July 2025 to 30th June 2026).

By Ch. Haseeb Sharif, Advocate High Court · H.S. Advocate & Co., Lahore

Every filing season I see the same two mistakes sitting side by side in the same return.

The first is a taxpayer who paid Rs. 400,000 into a voluntary pension scheme, donated to a hospital, and claimed neither. The second is a taxpayer who confidently claimed a housing-loan deduction that Parliament deleted four years ago, and who will now spend a year explaining himself to the Commissioner.

Both problems come from the same place. Part IX and Part X of Chapter III of the Income Tax Ordinance, 2001 have been rewritten so many times that most people are working from a mental copy of the law that expired somewhere around 2022. So here is where sections 60C, 61, 62 and 63 actually stand for Tax Year 2026 (1st July 2025 to 30th June 2026), and what replaced the ones that are gone.

First, know which pocket you are reaching into

A deductible allowance under Part IX comes off your taxable income before tax is computed. Its value depends on your marginal slab. For someone in the 35% bracket, a Rs. 100,000 allowance is worth Rs. 35,000.

A tax credit under Part X comes off the tax itself, but it is computed at your average rate through the familiar formula:

That average-rate mechanic is why a credit almost always delivers less than people expect. If your taxable income is Rs. 6,000,000 and your tax is Rs. 1,200,000, your average rate is 20%, not 35%. Rs. 100,000 of qualifying contribution buys you Rs. 20,000 of relief, not Rs. 35,000.

Two more mechanical points that catch people out. Credits under Part X are not refundable, and they are not carried forward to the next year. And they operate against tax on taxable income under the normal regime, so they do not wipe out a final-tax or minimum-tax liability sitting alongside it.

Section 60C: gone, and you should stop claiming it

Omitted by the Finance Act, 2022 · Last claimable: Tax Year 2022

Section 60C allowed an individual a deductible allowance for profit on debt, share in rent, or share in appreciation in the value of a house, paid on a loan taken from a scheduled bank, an SECP-regulated NBFC, the Government, a local or provincial government, a statutory body, or a listed public company, where the loan was used to build or buy a house. The ceiling was 50% of taxable income or Rs. 2 million, whichever was lower.

It was a good provision. It is also no longer law. The Finance Act, 2022 omitted section 60C along with sections 62 and 62A. The last year in which it could legitimately be claimed was Tax Year 2022 (1st July 2021 to 30th June 2022).

Section 63A: the housing relief actually came back

Inserted by the Finance Act, 2025 · First claimable: Tax Year 2026

Here is the part most taxpayers have not registered yet. The Finance Act, 2025 inserted a new section 63A, “tax credit for interest paid on low-cost housing loan.” It applies from Tax Year 2026 (1st July 2025 to 30th June 2026), which means this filing season is the first time anyone can claim it.

The relief is narrower than the old 60C and it is a credit, not a deduction. The conditions:

• The claimant must be an individual.
• The payment must be profit on debt, share in rent, or share in appreciation in the value of the house, on a loan from a scheduled bank, an SECP-regulated financial institution, the Government, a local government, a statutory body, or a public company listed on a registered stock exchange in Pakistan.
• The loan must be used for construction (including the land) or acquisition of one personal house with land area up to 2,500 square feet, or a flat with total area up to 2,000 square feet.
• The same profit must not already be deductible under section 15A against income from property. No double dipping.
• The credit is computed at the average rate on the lesser of the profit actually paid in the year, or 30% of taxable income.
• Once claimed, no credit is available for any other house or flat for the next fifteen tax years.

The size limits are where most Lahore clients will fall out, and the arithmetic is worth doing before you promise anyone relief. Land area of 2,500 square feet is roughly 277 square yards. On the common local convention where 10 marla is 250 square yards, a 10-marla house sits inside the limit and a kanal house does not. Anything on 1 kanal, and most of DHA and Bahria’s larger plots, are outside the section entirely no matter how modest the loan.

Also treat the fifteen-year bar as a real planning decision, not a footnote. A client servicing a small loan on a 5-marla starter home who claims the credit for one year has locked himself out of the credit on the bigger house he buys in 2031. If the loan is small and the upgrade is likely, the credit may not be worth the lock-in.

Section 61: charitable donations, alive and badly under-claimed

In force for Tax Year 2026

Section 61 survives untouched, and in my experience it is the single most commonly forgotten credit in individual returns. People donate substantially and never mention it to their consultant because they assume charity has nothing to do with tax.

The credit is available for any sum paid, or property given, as a donation, voluntary contribution or subscription to:

• any board of education or university in Pakistan established by or under a Federal or Provincial law;
• any educational institution, hospital or relief fund established or run in Pakistan by the Federal Government, a Provincial Government or a Local Government;
• a non-profit organisation approved under section 2(36); or
• an entity listed in the Thirteenth Schedule to the Ordinance.

The credit again runs on (A ÷ B) × C, where C is the lower of the donation amount, including the fair market value of any property given, or:

Three practical conditions decide whether the claim survives scrutiny.

Cash donations must move through a crossed cheque drawn on a bank. Cash handed over at a hospital counter or dropped in a box does not qualify, whatever the receipt says. Bank transfer records are what carry the claim.

Verify the donee’s status before you rely on it. A welfare committee, a neighbourhood mosque fund, or a genuinely charitable local madrassa is very often not approved under section 2(36) and not in the Thirteenth Schedule. The donation is still charity. It is simply not a section 61 donation. Ask the organisation for its approval letter and its NTN, and check the Schedule yourself rather than taking the receipt at face value.

The donation must fall inside the tax year. A cheque cleared on 3rd July belongs to the following year.

Section 62: withdrawn, and worth understanding why it still comes up

Omitted by the Finance Act, 2022 · Last claimable: Tax Year 2022

Section 62 gave a resident person other than a company a tax credit for the cost of acquiring new shares offered to the public by a listed company as an original allottee, sukuks of a listed company as original allottee, or life insurance premium paid to an SECP-registered insurer, where the person had salary or business income. Section 62A gave a parallel credit for health insurance premium.

Both were omitted by the Finance Act, 2022. Last available year: Tax Year 2022 (1st July 2021 to 30th June 2022). Corresponding changes were made in section 149 so employers stopped building them into monthly salary withholding.

Insurance agents in particular still sell policies on the strength of “you will get a tax rebate.” For a policy bought in 2026 that is simply not true, and I have had to say so to more than one disappointed client sitting across the desk with an illustration in his hand.

Section 63: the pension credit almost nobody uses

In force for Tax Year 2026

Section 63 is intact and it is the most generous relief still available to a salaried individual. It also has the lowest uptake of anything in Part X.

An eligible person as defined in section 2(19A), broadly a Pakistani individual holding a valid NTN, CNIC or NICOP, who derives income chargeable under the head “Salary” or “Income from Business”, is entitled to a credit for contributions or premium paid during the year to an approved pension fund under the Voluntary Pension System Rules, 2005.

Credit = (A ÷ B) × C, where C is the lower of:

1. the total contribution or premium paid in the year; or
2. 20% of taxable income for the relevant tax year.

Points that decide the claim:

• There is no minimum holding period. This is a genuine difference from the old section 62 mutual fund and share credits, which required the investment to be held for two years.
• Transfers do not count. Moving an existing balance from an approved employment pension or annuity scheme, or an approved occupational savings scheme, into your individual pension account is not a contribution and earns no credit. Only fresh money does.
• The old proviso allowing an additional 2% per year of age for persons who joined the fund at 41 or above applied only to those who joined within the ten-year window opening on 1st July 2006, and it ran out on 30th June 2019. Treat it as spent.
• The contribution must be made by 30th June. Salaried readers should note the more useful route: give your HR or finance department the pension fund statement during the year, and the credit is built into your monthly section 149 deduction instead of waiting for a refund that may never come easily.
• Remember what the credit is. It is a deferral, not an exemption. Withdrawals from the scheme are taxable in the year of receipt, and the taxation of pension income was reworked by the Finance Act, 2025. Plan the exit as carefully as the entry, particularly for clients who will draw down large amounts in a single year.

While you have the file open

Four more items in Part IX that cost nothing to check:

• Section 60, Zakat paid under the Zakat and Ushr Ordinance, 1980, including Zakat deducted at source by the bank. The deduction certificate is on your bank’s portal.
• Section 60A, Workers’ Welfare Fund paid, and Section 60B, Workers’ Participation Fund paid.
• Section 60D, education expenses. Available only where taxable income is less than Rs. 1,500,000, and capped at the lowest of 5% of tuition fee paid, 25% of taxable income, or Rs. 60,000 multiplied by the number of children. Either parent who pays the fee may claim it on furnishing the institution’s NTN or name. It cannot be carried forward, and it is not taken into account when computing salary withholding under section 149. The income threshold makes it useless to most people who pay serious school fees, which is a policy problem rather than a drafting one, but for the taxpayer just under the line it is free money.

One more, since it comes up every year: the 25% reduction in tax liability for full-time teachers and researchers. The Finance Act, 2025 settled the long-running dispute by restoring it with effect from 1st July 2022, but expressly withdrew it for Tax Year 2026 and onwards. So it can be raised in older assessments and appeals. It cannot be claimed in the return you are filing now.

Six things that get these claims disallowed

That last one is really the whole article compressed into a sentence. The relief is not difficult. Proving it eighteen months later, when the officer wants the markup certificate and the fund statement and you cannot find either, is where the money is actually lost.