Key Takeaways on Section 7E Property Tax in Pakistan
- Tax Applies to High-Value Properties – Section 7E imposes a 1% tax on properties exceeding PKR 25 million in fair market value, provided legal ownership is established.
- Mandatory Disclosure of All Assets – The FBR requires reporting all capital assets, even those below the threshold or with pending ownership transfers, for transparency and future compliance.
- Pending Supreme Court Decision – The final enforcement of Section 7E remains uncertain due to ongoing legal challenges. Taxpayers should report accurately but may defer payment until clarity emerges.
Section 7E of the Income Tax Ordinance has become a hot topic among property owners in Pakistan. Introduced in the Finance Act 2022, this law imposes a deemed rental income tax on immovable properties—even if they’re not rented out. But who exactly needs to pay this tax? Are there any exemptions? And how can you avoid penalties?
In this blog post, we’ll break it all down with clear explanations and real-life examples, helping you stay compliant and avoid future surprises.
What is Section 7E?
Section 7E assumes that if you own a property (like a plot, flat, or house) and it’s not your primary residence or business location, you’re earning a notional (deemed) income from iteven if it’s sitting vacant. The law taxes this assumed income at a fixed rate.
Here’s how it works:
- Deemed income: 5% of the property’s fair market value
- Tax rate: 20% of that deemed income
In simpler terms, this results in a 1% annual tax on the property’s value.
Example:
You own a commercial plot worth PKR 20,000,000.
- Deemed income = 5% of 20,000,000 = PKR 1,000,000
- Tax @ 20% = PKR 200,000 per year
Who Needs to Pay This Tax?
Section 7E applies to:
- All resident individuals in Pakistan
- Who own immovable property (excluding specific exemptions)
Other Owned Plots
Plots like the PKR 10 million rental property must be reported, even if individually below PKR 25 million. Their value counts toward the aggregate threshold.
Instalment Properties and Files
Properties on instalment plans [like the PKR 5 million plot] or files [PKR 1 million] where ownership isn’t fully transferred pose a unique challenge. The FBR insists these be reported under the “Other” category, noting “ownership not transferred.” Why? To avoid surprises during sales, where undeclared assets could incur dual taxation (236C + 7E).
If you want to learn more about the section 236 explore this Property Taxes in Pakistan 2025: Rates, Updates, Exemptions, and Sale Taxes.
Even if the property is not rented or is under construction, you still fall under this rule unless you’re eligible for an exemption.
Exemptions Under Section 7E
Not every property is taxed. Here are the exemptions that apply:
1. Primary Residence
The home you live in, if it’s your most valuable one, can be marked as “exempt.” In the example, the PKR 20 million house won’t be taxed, which might keep your total below PKR 25 million.
2. Business Use Property
Properties used directly in your business (that’s registered and active in FBR) are exempt.
3. Shaheed & Dependents
Properties owned by martyrs or their family members are not taxed.
4. Newly Purchased Properties
If you bought a property during the current tax year and paid tax under Section 236K, it’s exempt for that year.
5. Non-Resident Pakistanis
If you’re classified as a non-resident for tax purposes, this section doesn’t apply to your Pakistani properties.
Example:
You live in Dubai and own a flat in Karachi. Since you are a non-resident, Section 7E won’t apply to you.
If you want calculate the property tax, you can explore our Property Tax Calculator 2025.
How to Pay the Tax Under Section 7E
Step-by-Step Guide:
- Log in to the IRIS portal.
- Go to the Capital Assets section.
- Declare the fair market value of all properties.
- System will calculate the deemed income (5%).
- Pay 20% tax on the deemed income.
- Submit the tax and receive your certificate.
Example Calculation
You own two properties:
- Home = PKR 25 million (exempt as primary residence)
- Plot = PKR 30 million
For the plot:
- Deemed income = 5% of 30M = PKR 1.5M
- Tax = 20% of 1.5M = PKR 300,000
Result: You pay PKR 300,000 for the plot under Section 7E.
What If Ownership Is Not Fully Transferred?
This is a common question—what if you bought a plot or apartment on installments, and it’s not fully transferred in your name?
You still need to report it in your Capital Assets section under “Other” category.
Property Declaration Example
How to Declare:
- Include in tax return under “Capital Assets”
- Mark as “Value less than 25M” under “Other”
- Clearly note: “Ownership transfer pending”
- No immediate tax liability (value below threshold)
Ongoing Legal Situation
Several High Courts in Pakistan have given mixed decisions about the validity of Section 7E. Some called it unconstitutional; others upheld it. The matter is now pending before the Supreme Court of Pakistan.
What Should You Do?
Until the Supreme Court gives a final decision:
- File your tax returns with all property details
- Claim exemptions if applicable
- Defer payment if you’re advised by your tax consultant and legal clarity is pending.
Why Reporting Matters
Even if you’re not liable to pay the tax right now, not reporting your properties can cause serious trouble later:
- FBR may apply penalties or double tax at the time of sale
- You won’t be able to get the 7E Certificate required during property transfer
So it’s safer to declare and file everything upfront—even if you claim exemption.
Section 7E has added complexity to property ownership in Pakistan, especially for those who own more than one property. But with proper knowledge, timely reporting, and use of available exemptions, you can stay compliant and avoid penalties.
Keep your documents updated, declare all your assets, and monitor the legal status of Section 7E as it evolves. When in doubt, consult a certified tax advisor.
Frequently Asked Questions: 7E Property Tax Reporting in Pakistan
1. What is the 7E form and who is required to report under it?
The 7E form is used to report capital assets, especially immovable properties in Pakistan, under Section 7E of the Income Tax Ordinance, 2001. Anyone owning properties, particularly those valued over PKR 25 million, should report using this form.
2. If the total value of my properties is less than PKR 25 million, do I still need to report them?
Yes, it’s still important to report them in the capital asset form to ensure future transactions like selling are smooth and avoid penalties or extra tax under Section 236C or 7E.
3. How do I report a property under installment without ownership transfer?
You should list such properties under the “Other” option in the capital asset form and note that ownership transfer is pending. This ensures proper compliance and future tax accuracy.
4. Do I need to report a plot file if I haven’t received possession?
Yes, even without possession or official ownership, plot files should be reported. Mention that ownership is pending using the “Other” category to avoid future legal or tax complications.
5. How does the self-occupied residence exemption work?
You can claim an exemption for one self-occupied residential property. Choose your main residence (usually the one with highest market value) and mark it as exempt while filing your return.
6. Do I have to pay 1% tax if my property value exceeds PKR 25 million but includes installment plots?
Properties without formal ownership transfer may not be subject to the 1% tax immediately. But since this matter is under review in the Supreme Court, you should report them and wait for a final decision.
7. What is the current status of the 7E property tax and should I pay now?
Section 7E is currently under legal review in the Supreme Court. Reporting is recommended, but tax payment can be postponed until the final ruling. FBR will guide further if tax becomes payable.
8. How should I declare these properties if I’m not paying the 7E tax yet?
Declare all properties in your tax return, including those that take your assets above PKR 25 million. Mention that tax isn’t paid due to the pending court ruling and report both fair market and cost values for transparency.
Need help understanding how Section 7E applies to your property? Drop your questions in the comments or reach out to a qualified tax consultant today!
