Section 7E — Deemed Income Tax Guide 2026

Through Section 7E, the Finance Act 2022 imposed an annual tax on property owners whose assets, after exclusions, exceeded Rs 2.5 crore. It ran from tax year 2022 to tax year 2026, and the Finance Act 2026 abolished it. This guide explains what 7E was, who was outside it, and what it means for the tax year 2026 return.

1. What Was Section 7E? (Deemed Income)

Under section 7E(2), a resident person was treated as having earned income equal to 5% of the fair market value of their capital assets in Pakistan — the assets held on the last day of the tax year. That deemed income was taxed at 20% under Division VIIIC, which in effect meant 1% of the value. Under section 8 it was a final tax.

“Capital asset” excluded shares and securities, stock-in-trade, depreciable business assets and movable assets — so in practice it was a tax on land and buildings.

Example (up to tax year 2026):

Fair market value of the remaining assets after exclusions Rs 50,000,000 (5 crore):

• Deemed income (5%): Rs 2,500,000
• Tax (20% of deemed income): Rs 500,000
• Short formula: 1% of 5 crore = Rs 500,000

2. Which Assets Were Excluded?

The section 7E(2) exclusions, following its own wording:

Any one capital asset: Section 7E(2)(a): any one capital asset of a resident person — not necessarily the house you live in.

Own business premises: (b): premises from which a business is run, where those running the business are on the Active Taxpayer List.

Cultivated land: (c): your own agricultural land that is cultivated — excluding a farmhouse and the land attached to it.

Shuhada and government allottees: (d): an asset allotted to a shaheed or their dependents, to someone who died in service or was war-wounded, or to original allottees of the armed forces or federal/provincial government.

Rented-out property: (e): property whose income is chargeable to tax under the Ordinance and on which the tax has been paid.

First year after purchase: (f): in the first tax year of acquisition, if section 236K tax was paid.

Up to Rs 2.5 crore: (g): where the total fair market value of the remaining assets, after the exclusions above, does not exceed Rs 25 million.

Government and registered developers: (h), (i): provincial/local government, and local authorities, development authorities, builders and developers registered with the DNFBP Directorate General.

For non-filers: under the proviso to section 7E(2), the (a) one-asset, (e) rented-property, (f) first-year and (g) Rs 25 million exclusions did not apply to people not on the Active Taxpayer List (other than persons under rule 2 of the Tenth Schedule). Overseas Pakistanis had no separate exemption — the section applied only to residents. There was no separate exclusion for inheritance either.

3. How Was the Value Set?

Section 7E was charged on fair market value. For immovable property, section 68(4) empowers FBR to set area-wise values by notification (the FBR valuation tables); where FBR has not notified a value for an area, section 68(5) takes the value fixed for stamp duty (the DC rate).

4. The Tax Year 2026 Return — An Important Note

The return for tax year 2026 (1 July 2025 – 30 June 2026) is due by 30 September 2026. Section 7E applied to assets held on the last day of the tax year, and on 30 June 2026 it was still in the Ordinance — the omission runs from 1 July 2026. Neither the Finance Act 2026 nor FBR's circular says anything about tax year 2026. We cannot answer this, so do not assume the TY2026 return is automatically free of it: check the IRIS return form and your own tax practitioner.

5. Court Cases and the Abolition

The reason for section 7E's end that the primary sources record is the omission by the Finance Act 2026 — neither the Act nor FBR's circular mentions any court ruling. This page previously said the Federal Constitutional Court had declared 7E ultra vires; we could not find that claim in any primary source, so it has been removed. We have not published case numbers or dates because they could not be verified.

6. FAQ — Section 7E Deemed Tax Pakistan

Q1. Does Section 7E apply in tax year 2027 (from 1 July 2026)?

No. The Finance Act 2026 omitted section 7E and its rate (Division VIIIC). Under section 1(2) of the Act this took effect from 1 July 2026, so there is no 7E tax for tax year 2027 or later.

Q2. What happens to 7E in the tax year 2026 return (due by 30 September 2026)?

This is not clear. Section 7E applied to assets held on the last day (30 June) of each tax year, and on 30 June 2026 it was still in the Ordinance, because the omission runs from 1 July 2026. Neither the Finance Act 2026 nor FBR's Circular No. 2 of 2026-27 says anything about tax year 2026. So do not assume the TY2026 return is automatically free of it — check the IRIS return form and your own tax practitioner.

Q3. Was 7E tax payable on every plot?

No. The exclusions came off first (one asset, business premises, cultivated land, rented-out property and so on), and if the total fair market value of the remaining assets was below Rs 25 million, nothing was due. But for people off the Active Taxpayer List, the one-asset, rented-property, first-year and Rs 25 million exclusions did not apply at all.

Q4. Did being a filer (ATL) make a difference to 7E?

Yes, a large one. Under the proviso to section 7E(2), the exclusions in clauses (a), (e), (f) and (g) did not apply to people off the ATL (other than persons under rule 2 of the Tenth Schedule). So a non-filer's one house, rented-out property and the Rs 25 million threshold were all counted for 7E. The business premises exclusion (b) was also only for people on the ATL.

Q5. Did 7E apply to overseas Pakistanis?

Section 7E applied only to a "resident person". Non-residents were outside its scope altogether — not through a special exemption; the section simply did not apply to them. Whether you are resident or non-resident is decided tax year by tax year.

Q6. Was inherited property outside 7E?

The section 7E(2) exclusions do not mention inheritance separately. Inherited property counted like any other asset — unless it fell within the one-asset, rented-property or Rs 25 million exclusion.

Sources: Income Tax Ordinance 2001 as amended to 30 June 2026 — the text of section 7E and Division VIIIC as preserved in their omission footnotes, and sections 8 and 68; Finance Act 2026 (Act XLIII of 2026), section 1(2) and the clause omitting section 7E; FBR Circular No. 2 of 2026-27 (8 September 2026), item 9. Written by Bilal Hassan — see how we verify rates. This guide is for informational purposes only and does not constitute tax advice.

Check Current Property Tax

There is no Section 7E from tax year 2027 — but withholding and capital gains tax still apply to buying and selling property.

Section 7E has been omitted — from 1 July 2026

Section 7E Deemed Income Tax — What It Was and When It Ended