Section 7E deemed income: repealed, and what that leaves open

Section 7E of the Income Tax Ordinance 2001, the deemed income charge on immovable property, was repealed with effect from 1 July 2026 and no longer appears in the body of FBR's consolidated Ordinance amended up to 30 June 2026. It survives only as a footnote recording the omission. For tax year 2027 onwards there is no deemed income on immovable property, but earlier years remain open, which is why the section still matters for the tax year 2026 return due 30 September 2026.

Section 7E of the Income Tax Ordinance 2001 was omitted by the Finance Act 2026. It is no longer part of the Ordinance. That is a much bigger change than most property owners have registered, and because the repeal followed a constitutional challenge rather than a policy review, the position for earlier years is not as simple as the repeal makes it look. This page covers both. If you need a return prepared that touches any of this, that is our income tax filing service.

The repeal, and what it rests on

FBR's consolidated Income Tax Ordinance 2001, amended up to 30 June 2026, no longer carries section 7E in its body. The section survives only as a footnote, which reads that section 7E was omitted by the Finance Act 2026 and then reproduces the repealed text. The table of contents entry for section 7E now reads simply "Omitted by the Finance Act, 2026".

The rate provision went with it. Division VIIIC of Part I of the First Schedule, which set the rate of tax under section 7E, was omitted by the same Act, and likewise appears only as a footnote reproducing the repealed Division.

The Finance Act 2026 came into force, unless otherwise provided, on 1 July 2026. So section 7E has no application from tax year 2027 onwards. FBR's own Salient Features for Budget 2026 27 describe the change in the same terms, as the abolition of tax on deemed income from immovable property.

What section 7E did, while it existed

It is worth setting out plainly, both because earlier years are still open and because the mechanism explains why it was so contentious.

Section 7E, inserted by the Finance Act 2022, provided that for tax year 2022 and onwards a tax shall be imposed at the rates in Division VIIIC on the income specified in the section. Subsection (2) then did the work: a resident person shall be treated to have derived, as income chargeable to tax under this section, an amount equal to five percent of the fair market value of capital assets situated in Pakistan held on the last day of the tax year, excluding a list of categories.

Division VIIIC set the rate of tax on that deemed income at 20 percent. Five percent of fair market value, taxed at twenty percent, produces an effective annual charge of one percent of the fair market value of the covered property. That is the figure people actually experienced.

The exclusions in subsection (2) were the part that determined whether it touched you. Among them: property from which income was chargeable to tax under the Ordinance and on which tax was paid, which took genuinely let and taxed property outside the section; a capital asset in its first year of acquisition where tax under section 236K had been paid; and an aggregate value threshold of twenty five million rupees. A proviso added later disapplied several of those exclusions for persons not appearing on the Active Taxpayer List, other than persons covered by rule 2 of the Tenth Schedule, which made non filer status considerably more expensive under this section than under most.

The litigation, and how it ended

We need to be careful here about what we can and cannot show you, because this is the part where confident summaries have outrun the documents.

Section 7E was challenged from the moment it was enacted, and the High Courts did not agree with one another. That divergence is why the position was unsettled for three years, and it is worth setting out accurately, because the widely circulated accounts have two of the courts the wrong way round.

• Lahore High Court. A single bench, in W.P. No. 52559 of 2022, judgment dated 6 April 2023, held section 7E ultra vires as falling outside Entry 47 of Part I of the Fourth Schedule. On intra court appeal, a division bench set that judgment aside on 15 February 2024, restoring the section. So Lahore ended up upholding it.
• Islamabad High Court. In W.P. No. 213 of 2023, Waheed Ashraf v. Federation of Pakistan, with fifty four connected petitions, Aamer Farooq C.J. announced judgment on 19 February 2024 striking down sub section (2) as ultra vires and void ab initio, and setting aside the notices issued under the section as without lawful authority. The reasoning included that the provision was confiscatory and discriminatory in effect, that the exemptions lacked intelligible differentia, and that no machinery for assessing fair market value or for recovery had been provided.
• Peshawar and Balochistan High Courts. Both decided against the department, which is why FBR was the appellant from those judgments.
• Sindh High Court. Upheld the section, which is why the Karachi petitions were taxpayer led and were the earliest filed, from 2022.

The matter was finally decided not by the Supreme Court but by the Federal Constitutional Court of Pakistan. The lead case is C.P.L.A. 1442-K/2022, Sher Muhammad Mughari v. The Federation of Pakistan, heard by Bench I, before Justice Amin ud Din Khan, Chief Justice, and Justice Ali Baqar Najafi, in a consolidated batch running to roughly three hundred and nineteen connected petitions from the Karachi, Lahore, Peshawar and Quetta registries. The court's own cause lists record the batch listed for hearing on 29 April 2026, and Supplementary Cause List No. 98 of 2026 for Thursday 7 May 2026 is headed expressly for announcement of the short order.

The outcome, as reported consistently: section 7E declared ultra vires the Constitution and void ab initio, the taxpayers' petitions from Sindh and Lahore converted into appeals and allowed, and FBR's appeals from the Peshawar and Balochistan judgments dismissed.

One further point of sequencing, offered as inference rather than fact: the judgment of 7 May 2026 precedes the statutory omission gazetted on 26 June 2026, and it is reasonable to read the repeal as the legislature's response. We found no source stating that expressly.

Why this still matters for tax year 2026

This is the part that catches people, and it is the reason we have not simply written a two line page saying the section is gone.

A repeal effective 1 July 2026 removes the section from tax year 2027. It does not, by itself, unwind tax years 2022 through 2026. The return being filed by 30 September 2026 is the return for tax year 2026, a year in which section 7E was still on the statute book for the whole period. Anyone treating this year's return as a 7E free return purely because the section has since been repealed is conflating two different things.

What changes the analysis for those earlier years is not the repeal but the judgment, and that is precisely where we have told you we cannot show you the primary document. So the honest advice for the return due this September is: do not assume, and do not let a form default decide it for you. If section 7E affected you in tax year 2026, that is a position to take deliberately and with advice, not by omission.

The same caution applies in the other direction. If you have an open assessment, a pending appeal, or a demand you paid under protest for an earlier year, the judgment may be worth a great deal to you, and that is a reason to obtain it rather than to rely on a web page.

The cross reference nobody removed

Here is a genuine loose end, and we flag it as an observation rather than a conclusion because we cannot tell you how it will be handled at the counter.

Section 236C(2A), inserted by the Finance Act 2023, is the provision that created the 7E certificate in practice. It provides that notwithstanding anything contained in any other law, any person responsible for registering, recording or attesting transfer of any immovable property shall not register, record or attest transfer unless the seller or transferor has discharged its tax liability under section 7E and evidence to that effect has been furnished in the prescribed mode, form and manner.

That subsection still appears as live text in the consolidated Ordinance amended up to 30 June 2026. The Finance Act 2026 omitted section 7E and omitted section 236CA, but we found no amendment omitting section 236C(2A). So a live provision now conditions property registration on discharging a liability under a section that no longer exists.

As a matter of construction there is no subsisting liability under a repealed section to discharge, and the requirement should have nothing to bite on. But registrars, housing societies and sub registrar offices work from checklists rather than from constructions, and we have not found FBR guidance addressing the point. If you are transacting, ask what the registering authority requires before you rely on the certificate being unnecessary, and build a contingency into your timetable. We would rather tell you the position is untidy than tell you it is clean and have you discover otherwise at the counter.

What to do now

1. For tax year 2027 onwards, section 7E is not part of your computation. There is no deemed income on immovable property.
2. For the return due 30 September 2026, covering tax year 2026, take the 7E position deliberately and with advice. The repeal does not automatically answer it.
3. For earlier years with something open, an assessment, an appeal or a paid demand, obtain the certified judgment and take advice, because the value there could be substantial.
4. Before any property transfer, confirm with the registering authority what it currently asks for, given the surviving cross reference in section 236C(2A).
5. Stay on the Active Taxpayer List regardless. The transaction taxes under sections 236C and 236K remain, and the uplift for persons not on the list under the Tenth Schedule is where property owners lose the most money. See the Active Taxpayer List explained.

How rental income itself is computed, which is a separate question from deemed income and was always the better ground for genuine landlords, is in the rental income tax guide. If you own Pakistani property from abroad, the residency and filing questions are in the overseas Pakistani guide.

Last verified: 22 August 2026. Primary sources read directly for this page: the Income Tax Ordinance 2001 as consolidated by the Federal Board of Revenue and stated to be amended up to 30 June 2026, specifically the footnote recording that section 7E was omitted by the Finance Act 2026 together with the reproduced text of the repealed section including subsections (1) and (2); the footnote recording that Division VIIIC of Part I of the First Schedule was omitted by the Finance Act 2026 together with the reproduced rate of 20 percent; the table of contents entry for section 7E; and section 236C(2A), which appears as live text in the same consolidation. FBR's Salient Features for Budget 2026 27 was also read, as was FBR Circular No. 01 of 2023-24 dated 21 July 2023, which established the payment challan and Commissioner certificate mechanism under section 236C(2A). For the litigation: the judgment of the Islamabad High Court in W.P. No. 213 of 2023 was read directly; the forum, bench, lead case number and hearing and announcement dates of the Federal Constitutional Court proceedings were taken from that court's own published cause lists, including Supplementary Cause List No. 98 of 2026 for 7 May 2026; and the direction of each High Court stream was established from the party names in the consolidated cause list. The Lahore High Court judgments of 6 April 2023 and 15 February 2024 are described from secondary sources. The text of the Federal Constitutional Court's short order and detailed judgment could not be retrieved, so no account of its reasoning is given here, and nothing is stated about refund or restitution of tax already paid. General information, not tax advice. Confirm your own position with your tax consultant.