APPROVAL OF
NON PROFIT
ORGANIZAITON
UNDER CLAUSE
36 OF SECTION
2
1) DEFINITION.
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Non Profit Organization means any person other than
an individual, which is:established for religious, educational, charitable,
welfare or development purposes, or for the
promotion of an amateur sport;
Formed and registered under any law as a non-profit
organization;
Approved by the Commissioner for the 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 CIR;
And none of the assets of such person confers, or may
confer, a private benefit to any other person.
2) Objectives of NPO.
NPO is generally established for the humanitarian purposes like:
 The advancement of education
 Relief of the poor.
 Medical relief.
 Orphanage.
 Homeless hostels.
 Relief of special needs of people with disabilities.
 Promotion of fine arts.
 Literature.
 Music etc.
 Natural disaster relief.
 Rehabilitation of victims.
 Legal assistance and advancement of any other object of
general public utility.
 The welfare of the community.
 The promotion of amateur sports.
 Human Rights.
3) LEGAL FORMS OF NPO.
In Pakistan, the NPOs are generally registered or
incorporated in six to seven registration regimes. These
are;
I.
The voluntary Social welfare Agencies (registration
and control ordinance 1961).
II.
The Societies registration Act, 1860.
III.
The Cooperative Societies Act, 1984.
IV. The Companies Ordinance 1984.
V. The Trust Act, 1882.
VI. The Charitable Endowment Act, 1890.
VII. Other Legal obligation includes Muslim Waqf.
4) DOCUMENTS FOR APPROVAL BY
THE COMMISSIONER (IR)
Documents required for CIR Approval
1. Attested copy of constitution, memorandum,
article of association or bye laws as the case
may be, specifying the aims and objects.
2. Certified copy of the registered trust deed,
where applicable.
3. Certified copy of certificate of registration or
incorporation.
4. Audited Financial Statements for the
preceding year.
4) DOCUMENTS FOR APPROVAL BY
THE COMMISSIONER (IR)(cont)
1.
Name and Address of Promoters, Directors,
Trustees, president, secretary, treasurer, manager
and other office bearer, as the case may be,
indicating clearly their family relationships, if any,
with each other.
2.
An evaluated and certified report with regard to
the performance of the qualifying ‘NPO’ from
Pakistan Centre of Philanthropy Islamabad.
3.
The Commissioner shall finalize an application
under rule 211 with in two months of its receipt.
5) BENEFITS OF APPROVAL.
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Once approval has been granted by the Commissioner
Inland Revenue, the NPO can avail various tax benefits
including tax credit and exemptions.
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Any one making donations to an approved NPO can
reduce his / her tax liability by claiming tax credit under
clause 61 of Second schedule of Part 1 to the income
tax ordinance 2001.
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Provided that the amount so donated in the above
situation shall not exceed 30% of taxable income for the
year of an individual or AOP and 20% of the taxable
income of the company.
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An approved NPOs are exempted from levy of minimum
tax of 1% of the their turnover
6) Circumstances under which approval shall
not be granted under Rule 213 of Income Tax
Rules 2002.
1) If the constitution, memorandum or articles of association,
rules, regulations, or byelaws, or trust deed, as the case may
be, specifying the aim and object does not provide”
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For the audit of its annual accounts
For the quorum of a meeting of the members in which the
control of the affairs of the “NPO” vests.
In case of a ‘NPO’ other than a trust, of not less than four or
one third of the total number of the members of such body,
which ever is greater or
In case of a trust, of not less than three or one-third of the
total number of the members of such body, which ever is
greater.
In the event of its dissolution for the transfer of its assets after
meeting all liabilities, if any, to another similarly approved
‘NPO’ within three months of dissolution under intimation to
the Commissioner Inland Revenue.
6) Circumstances under which approval shall
not be granted(Cont)
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For the utilization of its money, property or income or any part
thereof solely for promoting its object.
For prohibiting any portion of its money, property or income
being paid or transferred directly by way of dividend bonus or
profit to any of its members or the relative or relatives of a
member or members.
For the maintenance of accounts with directorate National
Savings, National Bank of Pakistan, a scheduled bank, post
office, or nationalized commercialized banks.
For prohibiting the making of any changes in the constitution,
memorandum and articles of association, trust deed, rules and
regulations or by-laws as the case may be, without the prior
approval of the Commissioner Inland Revenue. Provided that
this clause is applicable where approval has been grant.
For restricting the surpluses or monies validly set apart, excluding
restricted funds, up to twenty five percent of the total income
of the year.
6) Circumstances under which
Approval is not granted(Cont)
2) If the Commissioner of Income Tax is satisfied that the applicant ‘NGO’
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has been or is being used for personal benefit of particular person or
group of person or for the benefit of its member’s or their families.
Promoting the view of a particular political party or religious sect.
has not or will not be able to achieve its declared aims and objects in
view of its setup, administration or otherwise as evaluated and certified
by an independent certification agency.
Has made expenditures on salaries exceeding 50% of the total receipts
excluding restricted donations or funds received during the tax year.
Statement of accounts of NPO is compulsory and there is dissipation of
funds or expenditure for any other purposes.
The Commissioner Inland Revenue will notify the applicant, in writing, of his
decision to refuse the approval along with a statement of reasons thereof.
7) WITHDRAWL FOR APPROVAL BY
CIR
Circumstances under which Approval given can be withdrawn
Approval granted earlier can be withdrawn by the Commissioner Inland
Revenue on being satisfied that any of the following circumstances exists:
 Any of the conditions listed under “circumstances under which
approval is not granted”.
 The ‘NPO’ has failed to file its Return of Total Income.
 The ‘NPO’ has failed to provide after every three years an evaluated
and certified report(PCP Report) with regard to its performance and
achieving its aims and objects during the three proceeding financial
year.
 Income deriving from donations, contribution and subscriptions and
that applicant has failed to provide complete details of donors in term
of rule 217(vi)(b) of Income Tax Rules 2002.
 The NPO has failed to provide list of beneficies of Rs 5000 and above in
term of the requirement of rule 217(vi)© of Income Tax Rules 2002.
 Salary Statement of the NPO shows that board of governance /
directors and trustees use organization for personal gain / benefit.
7) WITHDRAWL FOR APPROVAL
BY CIR(Cont)
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Details of bank account maintained has not been provided
by the NPO/NGOs.
Incase of universities and education institution detail of
investment like vehicles, structure and so on has not been
provided
List of the members of BOG/BOD and trust has not been
verified from regulators like SECP and so on.
Details of money set a part or kept unutilized has not been
explained with reasons in term of Rule 217(1)(iv)(d) of the
income tax rule's 2002.
For obtaining tax credit in cases of education institutions and
universities, detail of contributions made to NPOs and the list
of the students to whom scholarships are awarded have not
been provided.
Applicant has failed to file statement of deduction of taxes
under section 165 read with rule 44.
8) APPEAL AGAINST DECISION OF
COMMISSIONER
An organization dissatisfied with the decision
of the Commissioner for refusal of
application under rule 211 or withdrawal of
approval under rule 217 may file an appeal
within Sixty days of the receipt of order of
commissioner with the Chief Commissioner
(IR) of RTO/LTU. The Chief Commissioner (IR)
shall make a decision within Sixty days of
filling of an appeal.
9) CONDITIONS FOR 100% TAX
CREDIT.
NPOs/NGOs are allowed tax credit equal to 100% of the
tax payable subject to the fulfillment of certain conditions
1) Annual Income Tax Return has been filed of the
preceding year.
2) Tax required to be deducted or collected has been
deducted or collected and paid.
3) Withholding tax statements under section 149 and 165
for the immediately preceding tax year has been filed.
4) In case the NPO generates part of its income from
business or commercial activities and the same is
expended for carrying out welfare activities, a
proportional credit is allowed against such income.
10) LIST OF TAX CREDITS FOR NPO.
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Collection of tax at imports.
Withholding from dividend income.
Withholding on interest income from national saving
schemes.
Withholding on interest income from bank accounts.
Withholding on interest income from loans & borrowings.
Withholding from payment of goods, services and
contracts.
Withholding from rental payments.
Withholding from prize bonds.
Withholding on cash withdrawals.
Collection on purchase of motor vehicles.
Collection with motor vehicle tax.
Collection on electricity bills.
Collection on phone bills.
11) PENALTY FOR NON FILING
1) Where any person fails to furnish a return of income as
required under section 114 with in due date, such person
shall pay a maximum penalty of 50% of the tax payable
and minimum penalty equal to twenty thousand rupees.
2) Where any person fails to furnish a statement as
required under section 165 with in due date, such person
shall pay a maximum penalty of Rs 2,500 per day for
each day of default and minimum penalty of Rs 10,000/-.
3) Where any person fails to collect or deduct tax under
any provision of this ordinance, such person pay a
penalty of Rs 25,000/- or 10% of the amount of tax
whichever is higher
THANKS