Section 7E Tax Guide 2026: FBR 'Deemed Income' & Exemptions List

Last Updated: December 2025|Category: Tax & Finance

If you own property in Pakistan worth more than PKR 2.5 Crore, the government now assumes you are earning 'Deemed Income' from it—even if it is sitting empty—and wants to tax you on it.

This is Section 7E of the Income Tax Ordinance 2001. Before 2022, you only paid tax when you bought or sold land. Now, under Section 7E, you pay tax just for holding land.

For Real Estate Dealers, this is the biggest operational hurdle in 2025. You cannot transfer a property unless the Seller provides a 'Form A' (7E Exemption/Payment Certificate) issued by the Commissioner Inland Revenue.

This guide explains who is exempt, who must pay, and how to get the certificate to close your deal.

1. What is Section 7E Property Tax? (Calculation Formula)

The government logic is simple: If you have parked wealth in unproductive plots, you should pay a tax on it to encourage construction or selling.

  • Fair Market Value (FMV): The FBR value of your property.
  • Deemed Income: The government assumes you earn 5% of the FMV as rental income annually.
  • The Tax Rate: You pay a 20% tax on that deemed income.
  • The Shortcut Math: 5% (Income) x 20% (Tax) = 1% of the FBR Value.
1.1 Real World Example:

You own a plot in DHA Lahore with an FBR Value of PKR 3 Crore.

  • Deemed Income = 5% of 3 Crore = 15 Lakh.
  • Tax Payable = 20% of 15 Lakh = 3 Lakh.
  • Result: You pay PKR 3 Lakh every year just to keep the plot.

2. List of Section 7E Exemptions: Who Does Not Pay?

Not everyone has to pay. There are crucial exemptions that every investor must know to save money legally.

2.1 The 'One Capital Asset' Rule

Every resident Pakistani is allowed to own ONE capital asset (house or plot) tax-free, regardless of its value.

  • Strategy: If you own two plots, declare the most expensive one as your 'Exempt Asset' to save the maximum tax.
2.2 Low Value Exemption (< 25 Million)

If the aggregate value of all your properties (excluding the one exempt asset) is less than PKR 25 Million (2.5 Crore), you pay zero 7E tax.

2.3 Self-Owned Business Premises

If you are an Active Filer and you own a shop, office, or warehouse where you conduct your own business, it is exempt.

  • Trap: If you rent it out to someone else, it is NOT exempt under this clause (though rental income tax rules apply).
2.4 Agriculture Land

Agricultural land is exempt, unless it is classified as a 'Farmhouse' (defined as a house on >2000 sq yards with >5000 sq ft covered area).

2.5 The 'First Year' Exemption

If you bought a property this year and paid Section 236K (Advance Tax) on it, you are exempt from 7E for that specific tax year. You don't pay twice.

2.6 Shaheeds & War Wounded

Properties allotted to Shaheeds (Martyrs) or War Wounded personnel of the Armed Forces/Federal/Provincial Government are permanently exempt.

3. Required Evidence: How to Get FBR Form A (7E Certificate)

In 2025, the Registrar (Tehsildar) or Housing Society (DHA/Bahria) will refuse to transfer any property unless the Seller produces evidence regarding 7E.

3.1 The Evidence Required (Form A)

The Seller must log in to the FBR Iris portal and submit a declaration form regarding the property they are selling.

3.2 Scenario A (Tax Paid)

You pay the tax via PSID and attach the CPR (Challan).

3.3 Scenario B (Exempt)

You select the reason (e.g., 'This is my One Capital Asset').

3.4 The Result

The Commissioner Inland Revenue issues a 'Section 7E Certificate' (Form A) within 7 days. This piece of paper is mandatory for the transfer.

Dealer Warning: Do not schedule a transfer for tomorrow if the Seller hasn't applied for the 7E Certificate yet. It creates a 'Failed Transfer,' and you will lose credibility.

4. Stay Orders & High Court Status (2026 Update)

The legal status of 7E has been a roller coaster. While the Supreme Court matter is pending, the FBR's 'Collection Mechanism' is currently active.

4.1 Lahore High Court (LHC)

Initially suspended 7E, but after an Intra Court Appeal, the FBR reinstated it. As of late 2025, 7E is fully applicable in Punjab.

4.2 Sindh High Court (SHC)

Granted partial relief in some cases, but generally, registrars in Karachi still demand the certificate to be safe.

Critical Update: CRITICAL UPDATE (Punjab): As of late 2025, even if you have a Stay Order, the computer system at the PLRA (Arazi Center) often does not accept it without a specific 'Override' from the local Commissioner. Do not rely on the court order alone; get the exemption certificate uploaded on Iris.

5. Step-by-Step Guide: Filing Section 7E on FBR Iris Portal

If you are a Seller, here is how you get the certificate:

  • Log in to FBR Iris.
  • Go to 'Possession / Transfer of Immovable Property' section.
  • Select '7E Declaration'.
  • Add the property details (Address, Khasra #, Area, FBR Value).
  • Select 'Exemption' (if applicable) or 'Calculate Tax'.
  • If tax applies, generate PSID and pay via Banking App.
  • Submit the form.
  • Download the QR-Coded Certificate instantly (if automated) or wait for Commissioner approval (if manual review is triggered).

6. Strategic Planning for Investors

How do you avoid bleeding money on 7E?

6.1 Consolidate into High-Value Assets

Instead of owning 10 small plots of 50 Lakh each (Total 5 Crore = Taxable), buy ONE luxury house worth 5 Crore.

  • Benefit: That one house becomes your 'One Exempt Capital Asset.' Zero tax.
6.2 Shift to REITs

Investments in Real Estate Investment Trusts (REITs) are securities (shares), not 'Immovable Property.' They generally bypass the 7E 'holding tax' mechanism.

6.3 The 'Builder' Exemption

If you are a registered Builder/Developer with the DNFBP board, your land inventory (Stock in Trade) is exempt from 7E because it is business stock, not a capital asset.

Conclusion

For Sellers: The 7E Certificate is now as important as your CNIC. Apply for it 7 days before your deal closing date.

For Dealers: Stop losing deals to 'Missing Paperwork.' Use Aiksol360 to track the '7E Status' of every listing in your inventory. Our system flags properties that are 'Transfer Ready' vs. those pending FBR clearance.

Secure your deals with Aiksol360's Compliance Module

FAQs

Does 7E apply to Overseas Pakistanis?

Yes, if the property is in Pakistan. However, if you are a Non-Resident, enforcement is generally triggered only when you try to sell or transfer the property.

I paid Property Tax (Excise). Do I still pay 7E?

Yes. 'Property Tax' is a provincial tax on services. 'Section 7E' is a federal tax on deemed income. You must pay both.

Can I adjust 7E tax against my business income tax?

No. Section 7E is a 'Separate Block' of taxation. It is a final tax and cannot be adjusted against normal business losses or credits.

What if I have a Stay Order?

You must upload the certified copy of the Stay Order in the Iris portal. The Commissioner will review it and issue a specific exemption certificate. You cannot just show the Stay Order to the Patwari.

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