Section 7E Tax in Pakistan: Abolished From Tax Year 2027

Section 7E tax on deemed income from immovable property has been abolished. The Finance Act, 2026 omitted section 7E from the Income Tax Ordinance, 2001 with effect from 1 July 2026. It therefore does not apply for tax year 2027 and later under the current law.

The omission does not automatically cancel liabilities, assessments or proceedings relating to tax years when section 7E was in force. Taxpayers should still review their position for tax years 2022 through 2026.

Current Status of Section 7E Tax

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.

The Finance Act, 2026 omitted section 7E. FBR also confirmed in Circular No. 2 of 2026-27 that tax on deemed income was abolished and that the related rate provision in Division VIIIC of Part I of the First Schedule was omitted.

• Tax years 2022 to 2026: Section 7E can still be relevant, subject to the law, exclusions and judicial position applicable to the particular year.
• Tax year 2027 onward: Section 7E does not apply under the law currently in force.

How Section 7E Worked Before Its Abolition

During the years in which it applied, a resident person was generally treated as having derived income equal to 5% of the fair market value of specified capital assets situated in Pakistan and held on the last day of the tax year.

The tax rate under Division VIIIC was 20% of that deemed income. This produced an effective tax equal to 1% of the applicable fair market value:

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

For example, if the taxable fair market value was Rs.40 million, the deemed income was Rs.2 million. The tax was Rs.400,000, subject to the exclusions and rules applicable for that year.

Who Was Covered?

The charge generally applied to a resident person holding covered capital assets in Pakistan on the last day of the relevant tax year. Residence status, ownership, the nature of the asset and the exclusions available for that year all required separate review.

A person was not liable merely because property was registered in the person’s name. The complete facts and the version of section 7E applicable to the relevant tax year had to be considered.

What Assets Were Covered?

The definition of capital asset was broad, but the practical focus was immovable property situated in Pakistan. The statutory definition excluded specified categories, including:

• stock-in-trade, consumable stores and raw materials held for business;
• shares, stocks and securities;
• property qualifying for depreciation under section 22 or amortization under section 24; and
• movable assets outside the specified categories.

Main Exclusions Under the Former Law

The exclusions changed during the life of section 7E. Depending on the tax year, they included specified treatment for:

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

An exclusion should not be claimed from a general summary alone. The exact wording in force for the relevant tax year and the supporting evidence must be checked.

Does Abolition Remove Old Section 7E Liabilities?

No. The omission applies from 1 July 2026. It does not by itself erase tax properly chargeable for an earlier tax year, cancel an existing assessment, or end proceedings concerning a year when section 7E was in force.

A taxpayer dealing with an old demand, return omission or property-transfer issue should identify:

• the relevant tax year;
• residence status for that year;
• properties held on the last day of that year;
• the applicable FBR fair market values;
• available statutory exclusions;
• tax already paid or withheld; and
• any court order or FBR direction applicable to the taxpayer and jurisdiction.

What About Property Transfers and Section 7E Certificates?

Section 7E previously affected certain property-transfer procedures and generated extensive FBR guidance. After its abolition, current transactions should be handled under the law and procedures now in force.

Historic transactions can still require review where a transfer, certificate, payment or tax demand relates to a period when section 7E applied. Taxpayers should not use an old online guide or an earlier-year procedure without confirming that it remains relevant.

How to Review an Earlier Tax Year

1. Confirm the taxpayer’s residence status.
2. List the covered assets held on the last day of the tax year.
3. Determine the fair market value under the rules applicable to that year.
4. Apply each supported exclusion separately.
5. Reconcile the section 7E declaration with the income tax return and wealth statement.
6. Review payments, notices, assessments and property-transfer records.
7. Correct the filing or respond to FBR where required.

Frequently Asked Questions

Is section 7E still applicable in Pakistan?

No. Section 7E was omitted by the Finance Act, 2026 with effect from 1 July 2026. It does not apply for tax year 2027 and later under the current law.

Was section 7E applicable for tax year 2026?

Yes. Section 7E remained part of the law through 30 June 2026. Its application for tax year 2026 depends on the taxpayer’s facts, exclusions and other legal issues relevant to that year.

What was the effective section 7E tax rate?

The former law treated 5% of the applicable fair market value as deemed income and taxed that amount at 20%. The resulting effective tax was 1% of the applicable fair market value.

Does abolition cancel an old FBR demand?

No. An old demand must be reviewed on its own facts and legal basis. The 2026 omission does not automatically cancel liabilities for earlier tax years.

Do taxpayers need to report section 7E for tax year 2027?

No. Section 7E is not part of the Income Tax Ordinance for tax year 2027 under the current law.

Should an earlier return be revised?

That depends on the tax year, the original filing, the assets involved, available exclusions, limitation rules and any FBR proceedings. The return and wealth statement should be reviewed together before any revision is filed.

Get Help With an Earlier Section 7E Matter

4SYTE can review an earlier return, wealth statement, property record or FBR notice to determine how section 7E applied for the relevant tax year. Contact us for assistance.

Last reviewed: October 2026. Primary sources: Finance Act, 2026; Income Tax Ordinance, 2001 amended up to 30 June 2026; and FBR Circular No. 2 of 2026-27.