The Federal Board of Revenue (FBR) has announced a significant decision to refund tax collected under Section 7E of the Income Tax Ordinance, 2001, pertaining to deemed income on immovable properties. This move follows a landmark ruling by the Federal Constitutional Court (FCC) on May 7, 2026, which declared Section 7E unconstitutional and void from its inception. The FBR’s directive, issued via a circular on September 23, 2026, provides a clear pathway for taxpayers to claim refunds, marking a crucial development for property owners across Pakistan.
By SarmayaNext Macroeconomics Desk • ✓ Fact-Checked • Published September 2026
FBR Directs Refunds for Deemed Property Income Tax Under Section 7E
Pakistan’s Federal Board of Revenue (FBR) has decided to refund tax collected under Section 7E of the Income Tax Ordinance, 2001, for deemed income on immovable properties. This follows a May 7, 2026, Federal Constitutional Court ruling that declared Section 7E unconstitutional, prompting the FBR to issue a circular on September 23, 2026, for expeditious processing of refund claims.
The Federal Board of Revenue (FBR) has formally initiated the process for refunding tax collected under Section 7E of the Income Tax Ordinance, 2001, which previously imposed a deemed income levy on immovable properties. This development comes after sustained advocacy by the LTBA Public Interest Litigation Committee (LTBA-PILC), whose Chairman, Waheed Shahzad Butt, confirmed the FBR’s decision and the issuance of a guiding circular.
The catalyst for this action was the Federal Constitutional Court’s (FCC) order dated May 7, 2026, which unequivocally struck down Section 7E in its entirety. The court deemed the provision unconstitutional and void from its inception, effectively nullifying all notices and proceedings initiated under this section, which was introduced through the Finance Act, 2022. Despite this binding constitutional pronouncement, the FBR had initially remained silent on a refund procedure, leaving taxpayers in an uncertain legal and financial position.
Addressing this gap, the FBR issued a letter on September 23, 2026, to all Chief Commissioners Inland Revenue (LTOs, CTOs, RTOs). This directive instructs field formations not to reject requests from taxpayers for revision of returns filed in light of the FCC’s order. Furthermore, the letter mandates that any subsequent refund applications resulting from such return revisions “shall also be processed expeditiously, in accordance with the applicable law and procedure.” This formal guidance is expected to streamline the refund process for affected taxpayers.
Implications of the Section 7E Refund for Property Owners and Tax Policy
The FBR’s decision to refund Section 7E tax offers substantial relief to a potentially wide universe of taxpayers. The provision had applied a five percent deemed-income levy on the FBR-assessed fair market value of all properties valued above Rs25 million. The striking down of this section in its entirety means that a significant number of property owners who paid this tax are now eligible for refunds, preventing what the LTBA-PILC Chairman termed a waste of exchequer resources in futile litigation.
This move underscores the importance of judicial oversight in tax policy and highlights the impact of public interest litigation in safeguarding taxpayer rights. The FBR’s circular, while a positive step, is strictly confined to Section 7E revisions and refunds. Waheed Shahzad Butt cautioned that the letter “shall not be construed as having any application beyond the matter specifically addressed herein,” indicating a focused approach by the FBR.
A critical distinction remains regarding the Super Tax under Section 4C. While the FCC upheld the general validity of Section 4C, it did exclude certain exempt capital gains, including those on immovable property held beyond the prescribed holding period, inherited property, and other exempt income. However, the FBR has yet to notify a specific refund mechanism for collections made under these excluded categories of Super Tax. This leaves a parallel demand for refunds unresolved, suggesting that further clarity and action from the FBR will be required to address these outstanding issues.
For Pakistani investors and business leaders, this development clarifies a significant area of property taxation. While immediate relief is provided for Section 7E, the ongoing lack of a refund mechanism for certain Super Tax collections indicates that the landscape of tax litigation and policy adjustments remains dynamic. Property owners should carefully review their tax filings and engage with tax professionals to ensure they benefit from the Section 7E refund process and stay informed on other evolving tax provisions.
Estimate your exact monthly salary deductions and annual tax liability under updated FBR slabs with the Pakistan Income Tax Calculator.
Key Takeaways
- FBR will refund tax collected under Section 7E (deemed property income) following an FCC ruling declaring it unconstitutional.
- The FCC’s order on May 7, 2026, rendered Section 7E void from inception, impacting properties valued above Rs25 million.
- FBR issued a circular on September 23, 2026, directing field formations to process return revisions and expeditiously handle refund applications.
- The refund process is specific to Section 7E and does not currently extend to unresolved Super Tax (Section 4C) refund claims.
The Insider Take
The FBR’s swift action on Section 7E refunds, albeit after initial delay, signals a responsiveness to constitutional mandates and taxpayer advocacy. This sets a precedent for how future tax provisions challenged in court might be handled. However, the unresolved Super Tax refund mechanism highlights ongoing complexities in tax administration, suggesting that taxpayers and legal bodies will continue to push for comprehensive clarity on all court-mandated tax adjustments.
Frequently Asked Questions About Deemed property income FBR
What is the latest update on deemed property income tax refunds in Pakistan?
The FBR has decided to refund tax collected under Section 7E of the Income Tax Ordinance, 2001, for deemed income on immovable properties. This follows a Federal Constitutional Court ruling on May 7, 2026, which declared the section unconstitutional. A circular was issued on September 23, 2026, directing expeditious processing of refund claims.
Which properties are eligible for a Section 7E tax refund from the FBR?
Properties valued above Rs25 million that were subjected to the five percent deemed-income levy on FBR-assessed fair market value under Section 7E are eligible. The FCC struck down the provision in its entirety, making all such collections refundable. Taxpayers should revise their returns and file refund applications.
Does the FBR’s refund decision also apply to Super Tax under Section 4C?
No, the FBR’s recent circular is strictly confined to Section 7E revisions and refunds. While the FCC upheld Section 4C’s validity, it excluded certain capital gains from its scope. However, the FBR has not yet notified a refund mechanism for collections made under these specific excluded categories of Super Tax.
PS: For educational and informational purposes only. Not financial advice. Investing involves risk — consult a qualified financial advisor before making investment decisions.