07/05/2026
The Constitutional Court of Pakistan has declared Section 7E of the Income Tax Ordinance, 2001 relating to “Tax on Deemed Income” struck down through the issuance of a short order. Consequently, all notices, proceedings, assessments, and actions initiated under this provision stand ineffective subject to the detailed judgment.
Section 7E was introduced to impose tax on deemed income arising from certain capital assets owned by resident persons, primarily targeting immovable properties, with specified exemptions under the law. In practical application, however, the provision became highly controversial as it imposed tax on properties that were not generating any actual income. Taxpayers were required to pay tax on a presumed income basis, even where the property remained vacant, idle, or commercially unproductive.
The implementation of this provision created substantial compliance and financial challenges for taxpayers. In many cases, property owners faced difficulties in transferring or selling their immovable properties unless they satisfied the concerned authorities regarding payment of tax under Section 7E. Furthermore, the treatment of this levy as a final tax enhanced the burden and rigidity of the provision under the framework of the Income Tax Ordinance, 2001.
This landmark judgment is expected to provide significant relief to taxpayers and may contribute positively to the real estate and investment sectors of Pakistan. Individuals, investors and businesses are likely to benefit through reduced tax exposure, elimination of unnecessary departmental proceedings, and improved facilitation in property transactions.
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Disclaimer:
This write-up is intended solely for general informational and educational purposes and should not be construed as legal, tax, or professional advice. The contents are based on publicly available information and the short order currently issued by the Court. Readers are advised to seek independent professional consultation before taking any action based on this information. The writer and publisher shall not be held responsible for any loss, liability, or consequence arising from reliance upon this content.
