Section 7E Tax in Pakistan: Declared Void and Abolished

Section 7E tax on deemed income from immovable property is no longer enforceable. On 7 May 2026, the Federal Constitutional Court declared section 7E of the Income Tax Ordinance, 2001 unconstitutional and struck it down as void from inception. The Court also declared actions, proceedings and notices taken under section 7E to be without lawful authority and set them aside.

The Finance Act, 2026 later omitted section 7E from the Income Tax Ordinance with effect from 1 July 2026. FBR also confirmed the abolition in its explanation of the Finance Act, 2026.

Current Legal Position of Section 7E

Two separate developments determine the present position:

1. Federal Constitutional Court judgment: Section 7E was declared unconstitutional and void from the beginning. The Court did not treat the provision as valid only until 30 June 2026.
2. Finance Act, 2026: Parliament formally removed section 7E, its related rate provision in Division VIIIC of Part I of the First Schedule, and connected references from the Income Tax Ordinance.

Accordingly, taxpayers are not required to calculate or pay section 7E tax for tax year 2027 or later under the current law. Earlier demands, notices and proceedings based solely on section 7E must be reviewed in light of the Court’s judgment.

What the Federal Constitutional Court Decided

The Court considered conflicting judgments issued by different High Courts. It ultimately held that section 7E was beyond the constitutional authority of Parliament and was therefore void from inception.

The short order and detailed reasons establish that:

• section 7E was unconstitutional;
• the provision was struck down as void from the beginning;
• FBR appeals seeking restoration of the provision were dismissed;
• taxpayer appeals were allowed; and
• actions, proceedings and notices initiated or taken under section 7E were declared without lawful authority and set aside.

This nationwide judgment replaced the earlier uncertainty created by conflicting provincial High Court decisions.

How Section 7E Worked Before the Judgment

Section 7E was introduced through the Finance Act, 2022. It treated certain resident persons as having earned deemed income from capital assets situated in Pakistan, mainly immovable property held on the last day of a tax year.

The former provision generally deemed income equal to 5% of the applicable fair market value. That amount was taxed at 20%, producing an effective tax equal to 1% of the applicable value:

Fair market value × 5% deemed income × 20% tax rate = 1% effective tax

For example, taxable property with an applicable fair market value of Rs.40 million produced deemed income of Rs.2 million and tax of Rs.400,000, before applying the exclusions then available.

Former Exclusions and Scope

While section 7E remained on the statute book, its application depended on residence status, ownership, asset type, valuation and the version of the law applicable to the tax year. Its exclusions changed over time and included specified treatment for:

• one capital asset owned by a resident person;
• qualifying self-owned business premises;
• qualifying agricultural land;
• property from which taxable income was reported and tax was paid;
• certain assets in their first year of acquisition where tax under section 236K was paid;
• specified properties allotted to eligible government or armed-forces personnel;
• assets below the statutory aggregate fair-market-value threshold; and
• assets owned by specified governments, authorities, builders or developers.

These former rules remain relevant only when identifying the history of a return, payment, notice or proceeding. They do not override the Federal Constitutional Court’s ruling that section 7E was void from inception.

What Happens to Earlier Section 7E Demands and Notices?

An outstanding demand, notice, assessment or proceeding based solely on section 7E cannot be treated as valid without considering the Federal Constitutional Court judgment. The Court expressly set aside actions and proceedings initiated under the provision.

However, an FBR record or IRIS demand might not disappear automatically. A taxpayer should obtain the relevant order or notice and take the correct procedural step, such as seeking rectification, giving a written response, pursuing an available appeal or requesting correction of the tax record.

The correct procedure depends on the document issued, its current status and any applicable time limit. A taxpayer should not ignore an active IRIS demand merely because section 7E has been struck down.

Can Previously Paid Section 7E Tax Be Refunded?

The Court’s judgment and the Finance Act do not automatically transfer previously paid amounts back to taxpayers. A refund or adjustment must be claimed and processed under the applicable provisions of the Income Tax Ordinance and FBR procedure.

Before filing a claim, verify:

• the tax year and payment date;
• the payment reference and CPR;
• how the amount was reported in the income tax return;
• whether the amount was adjusted against another liability;
• the status of any assessment, appeal or rectification application; and
• the applicable limitation period and procedural requirements.

The constitutional ruling provides the legal basis for challenging the levy. Recovery of a particular payment still requires the proper procedural action.

Property Transfers and Section 7E Certificates

Section 7E previously affected property-transfer procedures, including evidence required under section 236C(2A). The underlying tax provision has now been declared void and formally omitted.

Property-transfer systems, IRIS workflows and registrar practices do not always update at the same time. Before completing a transaction, confirm the current requirements with the relevant registering authority and check the latest FBR procedure. Do not rely on an old section 7E certificate guide prepared before the 2026 judgment and legislative amendment.

What Taxpayers Should Do Now

1. Identify every section 7E payment, declaration, notice, order or demand.
2. Download the relevant return, wealth statement, CPR and FBR correspondence.
3. Check whether an active demand still appears in IRIS.
4. Determine the correct procedural remedy for each item.
5. Observe the applicable response, appeal, rectification or refund deadline.
6. Keep evidence of every application and FBR submission.

Frequently Asked Questions

Is section 7E still applicable in Pakistan?

No. The Federal Constitutional Court declared it unconstitutional and void from inception. The Finance Act, 2026 also removed it from the Income Tax Ordinance.

Does section 7E apply for tax year 2027?

No. Section 7E was omitted with effect from 1 July 2026 and is not part of the law for tax year 2027 under the current legislation.

What about tax year 2026 and earlier years?

The Court declared section 7E void from inception and set aside actions and proceedings taken under it. Earlier returns, payments and FBR records should be reviewed to determine the procedural action required.

Is an old section 7E demand automatically removed from IRIS?

Not necessarily. The legal basis has been struck down, but the electronic record might still require rectification, an appeal, a written response or another formal correction.

Will FBR automatically refund section 7E tax already paid?

No automatic refund mechanism was created by the Finance Act, 2026. The taxpayer must follow the applicable refund or adjustment procedure and satisfy its documentary and time-limit requirements.

Do rental income and capital-gains tax still apply?

Yes. The abolition of section 7E does not remove tax imposed under other provisions. Rental income, capital gains, advance tax on property transactions and other applicable taxes remain separate matters.

Get Help With a Section 7E Matter

4SYTE can review an earlier return, payment, IRIS demand, property record or FBR notice and identify the appropriate next step. Contact us for assistance.

Primary Sources

• Federal Constitutional Court judgment and detailed reasons concerning section 7E, announced on 7 May 2026.
• FBR Finance Act 2026.
• Income Tax Ordinance, 2001 amended up to 30 June 2026.
• FBR Circular No. 02 of 2026-27 explaining the Finance Act, 2026.

Last reviewed: November 2026.