Understanding Section 7(e) of Income Tax Ordinance 2001

What is section 7e of the Income Tax Ordinance 2001? Here you will Understanding Section 7(e) of Income Tax Ordinance 2001.

The Finance Act of 2022 included a new section 7E, according to the FBR. A resident person treated as having derived income equal to five percent of the fair market value of capital assets located in Pakistan will be subject to taxation at a rate of twenty percent under Division VIIIC of Part I of the First Schedule of the Ordinance beginning with the tax year 2022.

Following exclusions have been provided to which this section will not apply:

  1. One capital asset owned by the resident person;
  2. Self-owned business premises from where the business is carried out by the persons appearing on the active taxpayer’s list at any time during the year;
  3. Self-owned agriculture land where agriculture activity is carried out by the person but excluding farmhouses and annexed land. Farmhouse defined in this section;

Capital assets allotted to:

  1. A Shaheed or dependents of a Shaheed belonging to Pakistan Armed Forces;
  2. A person or dependents of a person who dies while in the service of Pakistan armed forces or federal or provincial government;
  3. A war-wounded person while in service of Pakistan armed forces or federal or provincial government;
  4. An ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of federal and provincial governments. Who are the original allottees of the capital asset as duly certified by the allotment authority;
  5. Any property from which income is chargeable to tax under the Ordinance and tax leviable has been paid;
  6. Capital asset in the first year of acquisition on which tax under section 236K paid;
  7. Where the fair market value of the capital assets in aggregate excluding capital assets mentioned in serial nos. (i) to (vi) above does not exceed rupees twenty-five million;
  8. Capital assets owned by a provincial government or local government;
  9. Capital assets owned by the local authority, a development authority, builders, and developers for land development and construction. Subject to the condition that such persons registered with the Directorate General of Designated Non-Financial Businesses and Professions.

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

Definition of Capital Asset

Capital asset means A property of any kind held by a person, whether or not connected with a business, but does not include –

  • any stock-in-trade, consumable stores, or raw materials held for the purpose of business;
  • any shares, stocks, or securities;
  • any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization deduction under section 24; or
  • any movable asset not mentioned in clauses (i), (ii), or (iii);

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:

As long as there is more than one dwelling unit in a compound and the average area of each dwelling unit is greater than 2000 square yards, each of these dwelling units is to be considered a distinct farmhouse.

Form of Payment of Tax on Properties U/S 7E of Income Tax Ordinance 2001

In accordance with Section 7E of the Income Tax Ordinance of 2001, the FBR issued a form for taxpayers to use in order to pay taxes on immovable properties. the Income Tax Ordinance of 2001’s tax on deemed income basis.

The FBR has issued SRO.1829(I)/2021 to issue a new form through proposed amendments to Income Tax Rules 2002.

As per the provided form, the FBR has asked the taxpayers to mention the total value of the capital assets taxable under section 7E; deemed income under section 7E and tax on deemed income under section 7E.

The form has also prescribed separate columns for the cost/declared value and fair market value of the immovable property. This form has been given under the “Tax Chargeable/Payments” tab of the tax return.

According to FBR, this notification, containing the form, would be applicable for the tax year 2022.

If you wish to learn in detail about Income tax return method then must enroll in this Income Tax Return Master course.

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