Income Tax Ordinance, 2001 — Section 7E: Tax on deemed income

3[7E. Tax on deemed income.- (1) For tax year 2022 and onwards, a tax shall be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule on the income specified in this section.

(2)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 1 Inserted by the Finance Act, 2016. 2 Section 4 substituted by the Finance Act, 2017. The substituted section read as follows: “This section shall apply to projects undertaken for development and sale of residential, commercial or other plots initiated and approved after the 1st July, 2016.” 3 Section 7E inserted by the Finance Act, 2022. 41 Chapter II – Charge of Tax market value of capital assets situated in Pakistan held on the last day of tax year excluding the following, namely:–

(a)one capital asset owned by the resident person;

(b)self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;

(c)self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and land annexed thereto;

(d)capital asset allotted to –

(i)a Shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;

(ii)a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;

(iii)a war wounded person while in service of Pakistan armed forces or Federal or provincial government; and

(iv)an ex-serviceman and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;

(e)any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon;

(f)capital asset in the first tax year of acquisition where tax under section 236K has been paid;

(g)where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a), (b), (c),

(d), (e) and (f) does not exceed Rupees twenty-five million;

(h)capital assets owned by a provincial government or a local government; or

(i)capital assets owned by a local authority, a development authority, builders and developers for land development and construction, subject to the condition that such persons are 42 Chapter II – Charge of Tax registered with Directorate General of Designated Non Financial Businesses and Professions 1[: Provided that the exclusions mentioned at clauses (a), (e), (f) and (g) of this sub-section shall not apply in case of a person not appearing in the active taxpayers’ list, other than persons covered in rule 2 of the Tenth Schedule.]

(3)The Federal Government may include or exclude any person or property for the purpose of this section.

(4)In this section–

(a)“capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include –

(i)any stock-in-trade, consumable stores or raw materials held for the purpose of business;

(ii)any shares, stocks or securities;

(iii)any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization deduction under section 24; or

(iv)any movable asset not mentioned in clauses (i), (ii) or (iii);

(b)“farmhouse” means a house constructed on a total minimum area of 2000 square yards with a minimum covered area of 5000 square feet used as a single dwelling unit with or without an annex: Provided that where there are more than one dwelling units in a compound and the average area of the compound is more than 2000 square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse. 2 [7F. Tax on builders and developers. – (1) A tax shall be imposed at the rate specified in Division I or II of Part-I of the First Schedule on the taxable profit of every person deriving income from the business of –

(a)construction and sale of residential, commercial or other buildings;

(b)development and sale of residential commercial or other plots; or

(c)activities as mentioned in (a) and (b) above. 1 The full stop substituted with colon and new proviso added by the Finance Act, 2023. 2 Section 7F inserted by the Finance Act, 2024. 43 Chapter II – Charge of Tax

(2)For the purpose of this section, taxable profit shall be –

(a)ten percent of gross receipts in respect of activities specified in clause

(a)of sub-section (1);

(b)fifteen percent of gross receipts in respect of activities specified in clause (b) of sub-section (1); and

(c)twelve percent of gross receipts in respect of activities specified in clause (c) of sub-section (1). Explanation.- For the removal of doubt, it is clarified that the provisions of this section shall only apply in respect of income accruing from gross receipts from activities specified in sub-section (1) and shall not be applicable to income or incomes from any other source or under any head of income.

(3)Where a taxpayer, while explaining the nature and source of the amount credited or the investment made, money or valuable article owned or the funds from which the expenditure was made, takes into account any source of income which is subject to tax under this section, the taxpayer shall not be allowed to take credit of any sum as is in excess of taxable profit: Provided that where taxable income under section 9 is more than the taxable profit under this section, taxpayer shall be entitled to take credit of such taxable income subject to the payment of tax at the rate specified in Division I or II of Part I of First Schedule.

(4)The provisions of this section shall not apply to a builder or developer established by an Act of the Parliament or a Provincial Assembly or by a Presidential Order and who is engaged in activities for the benefit of its employees or otherwise including activities for the planning and development of and for providing and regulating housing and ancillary facilities in a specified or notified area.] 8. General provisions relating to taxes imposed under sections 1[ 2[ 3[5, 5A, 5AA, 6, 6A,] 7, 7A, 7B and 7E]. – (1) Subject to this Ordinance, the tax imposed under Sections 4[ 5[5, 5A, 5AA, 6, 6A,] 7, 7A, 7B and 7E] shall be a final tax on the amount in respect of which the tax is imposed and 1 The expression “5, 6 and 7” substituted by the Finance Act, 2021. 2 The expression “5, 5AA, 6, 7, 7A and 7B” substituted by the Finance Act, 2022. 3 The expression “5, 5AA, 6,” substituted by the Finance Act, 2025. 4 The expression ”5, 4[ ] 4[ ] 4[“, 5AA”] 6, 7, 7A 4[and 7B]”” substituted by the Finance Act, 2022. 5 The expression “5, 5AA, 6,” substituted by the Finance Act, 2025. 44 Chapter II – Charge of Tax

(a)such amount shall not be chargeable to tax under any head of income in computing the taxable income of the person who derives it for any tax year;

(b)no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the amount;

(c)the amount shall not be reduced by

(i)any deductible allowance; or

(ii)the set off of any loss;

(d)the tax payable by a person under 1[section] 2[5, 5A, 5AA, 6, 6A,] 7, 3[7A, 7B and 7E] shall not be reduced by any tax credits allowed under this Ordinance; and

(e)the liability of a person under 4[section] 5, 6 5[, 6A] or 7 shall be discharged to the extent that

(i)in the case of shipping and air transport income, the tax has been paid in accordance with section 143 or 144, as the case may be; or

(ii)in any other case, the tax payable has been deducted at source under Division III of Part V of Chapter X 6[.] 7[ ] 1 The word “sections” substituted by the word “section”by the Finance Act, 2014. 2 The expression “5, 2[5A,2[“, 5AA”] 6,” substituted by the Finance Act, 2025. 3 The expression “7A and 7B” substituted by the Finance Act, 2022. 4 The word “sections” substituted by the word “section”by the Finance Act, 2014. 5 The expression inserted by the Finance Act, 2025. 6 Colon substituted by the Finance Act, 2013. 7 Proviso omitted by the Finance Act, 2013. The omitted proviso read as follows: “Provided that the provision of this section shall not apply to dividend received by a company.” 45 Chapter III – Tax on Taxable Income CHAPTER III TAX ON TAXABLE INCOME PART I COMPUTATION OF TAXABLE INCOME