Section 7E of the Income Tax Ordinance, 2001, introduced through the Finance Act 2022, indeed imposes a tax on deemed income from immovable property situated in Pakistan. This provision aims to tax resident individuals on the deemed income derived from their ownership of immovable property within the country.
Section 7E of the Income Tax Scope and Application:
Scope and application: Section 7E applies to resident individuals who own immovable property, such as land and buildings, located in Pakistan.
Deemed Income: Resident individuals are deemed to have earned income equivalent to a certain percentage of the fair market value of their immovable property. The specific percentage may vary depending on the provisions of the Finance Act.
Taxation Rate: The deemed income derived from immovable property is subject to taxation at a specified rate, as determined by the Finance Act. This deemed income is then subjected to a taxation rate of 20%.
Effective Tax Rate: The taxation rate effectively translates to 1% of the property's fair market value (5% of fair market value x 20% taxation rate = 1%).
Calculating the tax owed on capital assets
Fair Market Value (FMV) of capital assets: 30,000,000
5% of FMV = 1,500,000 (This is the amount of the capital assets subject to tax)
Tax Rate (20% for 7E Tax): 20%
Tax Owed: 20% of 1,500,000 = 300,000
So, based on these numbers, the tax owed on the capital assets with a fair market value of 30,000,000 would be 300,000. Calculate 7E Tax of your property
Compliance: Individuals subject to Section 7E are required to accurately assess the fair market value of their immovable property and report the deemed income for tax purposes.
Enforcement: The tax authorities are responsible for enforcing compliance with Section 7E and ensuring that resident individuals fulfill their tax obligations related to deemed income from immovable property.
Exemptions and Exclusions from the 7E Tax on Immovable Property in Pakistan
Families of Martyrs (Shaheed) and Individuals Who Passed Away While Serving: Families of martyrs and individuals who passed away while serving in the Armed Forces, Federal, or Provincial Governments are exempt from the 7E tax.
Individuals War-Wounded During Such Service: Individuals who were war-wounded during their service in the Armed Forces, Federal, or Provincial Governments are also exempt from the 7E tax.
A Resident Individual’s Single-Owned Capital Asset: Resident individuals who own a single capital asset are exempt from the 7E tax.
Self-Owned Business Premises Actively Used for Business: Individuals who own business premises and actively conduct business on those premises are exempt from the 7E tax.
Self-Owned Agricultural Land Actively Used for Agricultural Purposes: Resident individuals who own agricultural land that is actively used for agricultural purposes are exempt from the 7E tax, excluding farmhouses and annexed land.
Properties for Which Income is Already Taxed Under Existing Regulations: Properties for which income is already taxed under existing regulations are exempt from the 7E tax.
Capital Assets Acquired Within the First Year: Assets acquired within the first year, where tax under section 236K has already been paid, are excluded from the 7E tax.
Assets with Total Aggregate Fair Market Value Not Exceeding PKR 25 Million: Assets with a total aggregate fair market value not exceeding PKR 25 million, excluding specific categories mentioned above, are excluded from the 7E tax.
Assets Owned by Government Entities: Assets owned by various government entities, including provincial and local governments, local authorities, and development authorities, are excluded from the 7E tax.
Assets Owned by Builders and Developers: Assets owned by builders and developers registered with the Directorate General of Designated Non-Financial Businesses and Professions are excluded from the 7E tax.
It's important for individuals subject to the 7E tax to accurately assess the fair market value of their properties and comply with the taxation requirements imposed by the relevant authorities in Pakistan. As tax laws and regulations may change over time, individuals should consult with qualified tax advisors or legal experts for the most up-to-date information and guidance regarding their tax obligations.
Calculate 7E Tax of your property
7E tax calculator at dhapage.com is a handy tool that provides accurate calculations for the 7E tax imposed by the federal government so you can easily figure out how much you owe. It's super user-friendly and saves you the hassle of trying to do the math yourself. Check out dhapage.com for all your 7E tax calculation needs! Calculate 7E Tax of your property
