What is Section 7E? Understanding Pakistan’s Tax on Immovable Property in 2025-2026

If you’ve been hearing a lot of buzz about Section 7E lately, and scratching your head trying to make sense of it, you’re not alone.

Ever since the Federal Board of Revenue (FBR) introduced this new rule, property owners across Pakistan have been wondering: What exactly is 7E tax or deemed income, who needs to pay it, and how does it work?

Let’s break it down in a layman language, no legal jargon, no confusion. Just what you really need to know about Section 7E Pakistan and how it affects your property taxes in 2025-2026.

What is Section 7E?

Section 7E was introduced through the Finance Act, 2022 under the Income Tax Ordinance, 2001, and it essentially imposes a tax on immovable property, land or buildings held by individuals in Pakistan.

For example, if you own property that is not generating rental income (like a second home, plot, or commercial land sitting idle), the government assumes you are still benefiting from it. That “benefit” is treated as deemed income, and that’s what Section 7E taxes.

Deemed income simply means income you are considered to have earned even if you didn’t actually receive it in cash.

In other words, the government “deems” (assumes) that you got some benefit or profit from an asset like owning property and taxes you on that assumed income.

So, If you own a house that isn’t rented out, the FBR may treat it as if you earned income from it, even though no rent was received. That is called deemed income.

Why Was Section 7E Introduced?

The main goal behind Section 7E is to broaden the tax base and discourage speculative property investment.

For years, many individuals parked their wealth in real estate i.e. buying plots, letting them appreciate, and selling later without contributing much to the tax system. The FBR’s logic was, if someone can afford to hold high-value property, they should contribute to the tax net, even if they’re not actively earning from it.

In other words, Section 7E Pakistan aims to promote fair taxation and generate more revenue from under-taxed assets.

How Does the 7E Tax Work?

Here’s the simple version of how 7E tax on immovable property is calculated:

1. The FBR assumes you earn an annual deemed income equal to 5% of your property’s fair market value (FMV).
2. You then pay 20% tax on that deemed income.

Example:

Let’s say you own a residential plot valued at PKR 20 million.

• Deemed income = 5% of 20 million = PKR 1 million
• Tax = 20% of 1 million = PKR 200,000

So, under Section 7E, you would owe PKR 200,000 in tax for that year, even if you earned no rent or profit from that property.

Who Has to Pay the 7E Tax?

This tax primarily applies to individuals (not companies) who own immovable property in Pakistan. However, not every property owner falls under 7E.

You’re liable if:

• The total value of your immovable property (excluding one residential home) exceeds a certain threshold.
• The property is not actively generating income (e.g., rented property declared under Section 15 is exempt).
• You’re a resident individual holding the property as of June 30 of the tax year.

You’re exempt if:

• The property is your personal residence.
• The property uses for agricultural or business purposes.
• You own one small plot (size and value within limits defined by FBR).
• You acquired or sold property within the same tax year (specific timing matters).

How to Calculate Your 7E Tax Liability (Step-by-Step)

Here’s a straightforward way to estimate what you might owe:

1. Check your property’s FMV using FBR’s updated valuation tables.
2. Subtract any exempt property (like your personal residence).
3. Calculate deemed income: 5% of the remaining property value.
4. Apply the 20% tax rate to that deemed income.

That’s your 7E tax for the year.

💡 Pro Tip: If you own multiple properties, evaluate, calculate or exempt 7E tax separately in the FBR portal.

Section 7E Pakistan: Examples for Different Property Owners

To reduce confusion, the FBR issued guidelines in 2023 and 2024, clarifying who’s exempt and how valuation should be determined.

For example:

• Properties declared under Section 15 (Rental Income) are not subject to 7E.
• Under-construction properties may be exempt until they are usable or habitable.
• For joint properties, the FBR calculates the value according to each owner’s share.

The FBR also introduced an official property valuation table to determine the Fair Market Value (FMV) of immovable assets so you can’t just underreport property value anymore.

Impact of Section 7E on Property Owners and the Market

When Section 7E first came into effect, it created a lot of uncertainty in the real estate market. Many transactions slowed down as buyers and sellers waited for clarification.

However, by 2024 and now into 2025, most of the confusion has settled. The rule is clear: if your property isn’t generating income, it’s likely subject to deemed income tax.

This has led to:

• More people renting out vacant properties to offset the tax burden.
• Better documentation of property income for compliance.
• A gradual stabilization in property investment, as speculative buying becomes less attractive.

In short, Section 7E is pushing Pakistan’s real estate market toward greater transparency and accountability.

Common Misconceptions About 7E

Let’s bust a few myths:

Myth 1: 7E tax applies to everyone who owns property.
Truth: It applies mainly to high-value, non-rented properties, not your home.

Myth 2: You’ll pay tax twice, on rent and on deemed income.
Truth: If declare rental property under Section 15, 7E does not apply to that property.

Myth 3: You can avoid it by undervaluing your property.
Truth: The FBR now uses fixed FMV tables and cross-verifies data from NADRA and property registries.

How to Stay Compliant with Section 7E in 2025-2026?

If you’re a property owner, here’s how to stay on the right side of the FBR:

• File your tax return accurately. Declare all immovable properties you own.
• Use FBR’s valuation tables not your own estimates.
• Keep proof if your property is on rent, under construction, or exempt.
• Consult a professional accountant or tax consultant to ensure compliance.

At oBookkeeping, we help individuals calculate their 7E liability, identify eligible exemptions, and file income tax returns correctly so you can stay compliant and stress-free.

Wrapping Up

Section 7E Pakistan may sound complicated, but it’s essentially about tax fairness, ensuring everyone contributes based on the assets they hold.

For property owners, the key is to understand what’s taxable, what’s exempt, and how to calculate correctly. With the right guidance, staying compliant with the 7E tax on immovable property doesn’t have to be overwhelming.

As the government continues refining tax policies in 2025-2026, one thing is clear: transparency and documentation are more important than ever. So, if you invest in property, own a home, or develop real estate, know the Section 7E rules and follow them carefully.

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