Section 7E Tax on Property in Pakistan – Complete Guide (2026 Update)

If you own immovable property in Pakistan, you must understand Section 7E of the Income Tax Ordinance, 2001. This section introduced a tax on deemed income from capital assets, particularly immovable properties. Many property owners are confused; however, understanding the rules can help you avoid penalties.

In this guide, we explain everything in simple terms.

What is Section 7E Tax?

Section 7E was introduced through the Finance Act 2022. Under this provision, tax is imposed on deemed income from capital assets situated in Pakistan.

These assets include:

Open plots
Residential properties
Commercial properties
Farmhouses
Any immovable property held for investment

Even if the property does not generate rental income, the tax may still apply. Therefore, property owners must carefully review their tax position.

How Section 7E Tax is Calculated

Under Section 7E:

Deemed income = 5% of Fair Market Value (FBR value)
Tax rate = 20% of deemed income

As a result, the effective tax becomes 1% of the fair market value of the property annually.

Example:

If property value (FBR value) = Rs. 10,000,000

Deemed income = 5% = Rs. 500,000
Tax payable @ 20% = Rs. 100,000

Therefore, the total annual tax will be Rs. 100,000.

Who is Liable to Pay Section 7E Tax?

Section 7E applies to:

Resident individuals
AOPs (Association of Persons)
Companies

However, the person must be a resident for tax purposes. In addition, the property must qualify as a capital asset under the law.

Exemptions Under Section 7E

Fortunately, certain exemptions are available. These include:

One self-occupied residential property
Property used for business purposes
Stock-in-trade of builders and developers (subject to conditions)
Agricultural land
Property owned by local authorities
Low-value properties (below specified threshold)
Certain inheritance or gifted properties

However, each exemption has specific conditions. Therefore, professional review is strongly recommended before claiming any exemption.

Important Compliance Requirement

Section 7E tax must be paid:

Before filing income tax return
Or at the time of property transfer

Otherwise, FBR may block the transfer of property. Consequently, non-compliance can delay transactions and create legal complications.

Impact on Property Buyers & Sellers

For sellers, it is essential to clear 7E liability before transfer.
Similarly, buyers should verify tax clearance before making payment.

In fact, failure to comply may result in penalties or notices from FBR. Therefore, due diligence is extremely important.

Common Misconceptions

Many people misunderstand Section 7E.

For example:

❌ If property is vacant, no tax applies.
✔️ However, even vacant property may attract 7E tax.

❌ If no rental income, no tax.
✔️ In reality, it is based on deemed income.

❌ Only commercial properties are taxable.
✔️ On the contrary, residential properties may also fall under 7E.

How to Avoid Penalties

To avoid issues:

Confirm property valuation from FBR
Calculate 7E liability correctly
Claim exemptions carefully
File income tax return on time
Maintain proper documentation

Most importantly, consult a qualified tax advisor to ensure compliance.

Need Professional Assistance?

Understanding Section 7E can be complex, especially when multiple properties are involved. Therefore, expert guidance can save both time and money.

QAZI MANSOOR AHMAD AND CO – Tax Consultants
📞 Contact: 0333-6346404

We assist with:

Section 7E tax calculation
Exemption review
Income tax return filing
Property tax compliance
FBR and ATL matters