Tax Deductions and Allowances You Can Claim

Reducing your tax liability legally is not tax evasion, it is tax planning. Pakistani law provides several deductible allowances and tax credits that many taxpayers simply forget to claim when filing their return.

Charitable donations to approved non profit organisations attract a tax credit. You must retain the receipt and the recipient must be listed under the relevant schedule of the Income Tax Ordinance for the claim to survive scrutiny.

Contributions to an approved pension fund under a voluntary pension scheme also generate a tax credit, with the eligible amount capped as a percentage of your taxable income for the year. This is one of the most underused reliefs available to salaried professionals.

Deductible allowances include the profit paid on a house building loan for a self occupied property, and education expenses for children subject to income thresholds. Each has documentation requirements, so keep bank certificates and fee vouchers.

Zakat deducted at source from a bank account is a deductible allowance rather than a credit, and is subtracted before arriving at taxable income. Ensure the deduction certificate from your bank matches what you declare.

Business taxpayers have a wider set of deductions, including rent, salaries, utilities, depreciation on assets and financial charges, provided the expense is wholly and exclusively for business purposes and is properly recorded.

The rule of thumb is simple: if you cannot produce a document to support a deduction, do not claim it. Well documented planning saves money, undocumented claims invite audit.