The Federal Board of Revenue (FBR) has introduced a temporary suspension of the deemed income tax under Section 7E of the Income Tax Ordinance, 2001, in response to legal challenges and stakeholder concerns.Business Recorder+1YouTube+1
Understanding Section 7E: Deemed Income Tax
Section 7E, introduced through the Finance Act, 2022, imposes a tax on the deemed rental income of immovable properties. Under this provision, resident individuals owning capital assets with an aggregate fair market value exceeding Rs. 25 million are considered to have derived income equivalent to 5% of the property’s fair market value, taxed at a rate of 20%. This effectively results in a 1% tax on the property’s fair market value.Business Recorder+2Business Recorder+2BeFiler+2Business Recorder+3BeFiler+3pakwht786.com+3
Temporary Suspension and Legal Developments
The implementation of Section 7E faced legal scrutiny, leading to its temporary suspension. In August 2023, the FBR decided to halt the proposed increase in property valuations until September 2023, acknowledging challenges in the execution of Section 7E and aiming to address anomalies in consultation with real estate stakeholders. musheer.com+1BeFiler+1Business Recorder
Furthermore, the Lahore High Court initially declared Section 7E ultra vires, suspending its operation within its jurisdiction. However, this decision was later set aside in February 2024, reinstating the applicability of Section 7E in Punjab. Business Recorder
Implications for Taxpayers
Taxpayers owning multiple immovable properties should stay informed about the status of Section 7E, especially in light of ongoing legal proceedings. It’s advisable to consult with tax professionals to understand potential liabilities and ensure compliance with current regulations.Business Recorder+12Business Recorder+12BeFiler+12
Conclusion
The temporary suspension of the deemed income tax under Section 7E reflects the FBR’s responsiveness to legal and stakeholder feedback. As the situation evolves, taxpayers should remain vigilant and seek professional advice to navigate the complexities of property taxation in Pakistan.
