Section 7E Property Tax for Tax Year 2026: Rates, Exemptions and Non-Filers (Repealed From FY2026-27)

Section 7E of the Income Tax Ordinance, 2001 treats owning certain immovable property as if it earns you income, whether or not you rent it out. The deemed income is 5% of the property's fair market value, and the tax on it works out to 1% of that value each year. It only applies above a Rs 25 million value threshold, several kinds of property are exempt, and it applies to non-filers as well as filers — though non-filers lose access to several of those exemptions and to the threshold itself. Section 7E is also being removed from the law from tax year 2027 onwards, so this guide covers tax year 2026, the last year it applies. This guide explains who is covered, how the tax is worked out, and what to do if you own property but aren't on the Active Taxpayer List.

What Section 7E is

Section 7E was inserted by the Finance Act 2022 and has applied from tax year 2022 onwards. It was designed to tax wealth held in property that produces no declared income, such as vacant plots or second homes, rather than rent or capital gains.

Under Section 7E, FBR treats you as earning income just from holding the property. That deemed income is taxed separately from your salary or business income.

Section 7E is being repealed. The Finance Act 2026 omits section 7E from the Income Tax Ordinance with effect from 1 July 2026, the start of tax year 2027. Section 7E is still expected to apply for tax year 2026 — the return due 30 September 2026.

Who it applies to

• Resident persons: individuals, associations of persons (AOPs) and companies that own immovable property in Pakistan.
• Filers and non-filers alike. Section 7E is not limited to people on the ATL. A non-filer who owns property covered by Section 7E has a tax liability like anyone else, and not filing a return just leaves that liability undeclared.
• Not non-residents: property owned by a non-resident person is outside Section 7E.

The Rs 25 million threshold

Section 7E only applies where the fair market value of your property that it covers is more than Rs 25 million. If the value of your property that isn't exempt is Rs 25 million or less, Section 7E doesn't apply. How the threshold works across several properties matters if you own more than one, so check this with a tax adviser. This threshold itself is one of the exemptions that doesn't apply if you're not on the Active Taxpayer List — see below.

How the tax is worked out

1. Find the fair market value. This is based on FBR's property valuation tables for the area where the property is located. Our guide to FBR property valuation rules explains how those tables work and where to find them.
2. Deemed income = 5% of that value.
3. Tax = 1% of the value. Section 7E taxes the deemed income at a flat rate, which works out to 1% of the fair market value.

Example: a non-exempt property with an FBR value of Rs 50 million.

Because the tax follows FBR's valuation, a revision of the valuation tables for your area also changes your Section 7E bill.

Exemptions

The main exemptions, for a person on the Active Taxpayer List, are:

• One capital asset owned by the resident person — not limited to a house; a single plot, flat or house can qualify.
• Self-owned agricultural land where agricultural activity is carried out (farmhouses excluded).
• Self-owned business premises, where the business is carried out by a person appearing on the ATL.
• Property whose income is already taxed, for example property that is let out and whose rent is taxed as income, subject to conditions.
• Capital assets allotted to Shaheeds' dependants, persons who died in service, war-wounded persons, and ex-/serving armed forces and government personnel as original allottees.
• Property owned by a provincial or local government.
• Property held by a local authority, a development authority, or builders and developers for land development and construction, where they are registered with the Directorate General of Designated Non-Financial Businesses and Professions.
• Property owned by non-residents (see above).

The conditions attached to these exemptions matter, so don't assume a property qualifies without checking. Keep the documents that prove an exemption applies, such as a rent agreement, proof of agricultural income tax, or a government allotment letter.

If you are not on the Active Taxpayer List, the proviso to section 7E(2) removes only four of the exemptions above: the one-capital-asset exemption, the already-taxed-property exemption, the first-year exemption for property on which tax was paid under section 236K, and the Rs 25 million threshold — other than for specific categories set out in the Tenth Schedule to the Ordinance. The agricultural-land, allotted-asset, government-owned and registered-developer exclusions still apply even if you're not on the ATL. In practice this means a non-filer's covered property is taxable under Section 7E regardless of its value — one more reason getting on the ATL matters.

What non-filers should know

The title of this guide mentions non-filers because this is where Section 7E catches people out:

• The liability exists whether or not you file. Owning property covered by Section 7E creates a tax obligation for each tax year it applies.
• Several of the exemptions and the threshold don't help you. As explained above, being off the ATL strips away the one-asset exemption, the already-taxed-property exemption and the value threshold itself, so more of what you own is exposed to the tax.
• Property deals expose you. When you sell, the transaction is recorded and reported, and FBR matches property records against returns. Unpaid Section 7E tax for earlier years can come up at that point. If you plan to sell, settle and declare any past Section 7E tax first, and ask the registering office and your adviser what evidence they need.
• Non-filers pay more on the transaction itself. Advance tax on buying and selling property is much higher for people not on the ATL. See filer vs non-filer differences.

The fix is the same as for any non-filer: register on IRIS, file your return with a full wealth statement, and pay what's due. Our Active Taxpayer List guide walks through registration and getting on the list.

How to comply

1. List every property you own, with its location, size and when you bought it.
2. Look up the FBR value for each one in the current valuation tables.
3. Check for exemptions and set aside a self-owned capital asset if it applies to you — remembering that most exemptions require you to be on the ATL.
4. Check the Rs 25 million threshold against the value of the properties that remain, if you're on the ATL.
5. Work out the tax at 1% of fair market value for each property that is covered.
6. Declare and pay it with your annual income tax return.
7. Make sure your wealth statement lists every property, because a property that appears in FBR's records but not in your wealth statement is an obvious mismatch. Our wealth statement reconciliation guide covers how to get this right.
8. Keep records: title documents, the valuation you used, payment slips and exemption evidence.

Non-payment can bring default surcharge and penalties under the Income Tax Ordinance, and it can flag your profile for an audit.

Frequently asked questions

Does Section 7E apply to the house I live in?

If you're on the ATL, one self-owned capital asset — which can be the house you live in — is exempt. Section 7E is aimed at additional properties, such as plots, second homes and property that isn't let out.

Is Section 7E only for filers?

No. It applies to resident owners of covered property whether or not they're on the ATL. Not filing doesn't remove the liability — and being off the ATL also removes most of the exemptions and the Rs 25 million threshold, so non-filers are often worse off.

What rate is Section 7E tax?

Deemed income is 5% of fair market value, and the tax works out to 1% of fair market value. On a property valued at Rs 50 million, that's Rs 500,000.

Which value is used?

The fair market value based on FBR's valuation tables for the property's area.

I rent my property out. Do I pay Section 7E as well?

Property whose rental income is taxed as income is among the exemptions, subject to conditions — but this exemption only applies if you're on the ATL. Declare the rent in your return and check with an adviser that your case meets the conditions.

Does Section 7E still apply next year?

Not from tax year 2027. The Finance Act 2026 removes section 7E from the Income Tax Ordinance with effect from 1 July 2026. Tax year 2026 is the last year it applies.

This is general information and tax rules change often. Check FBR's current notifications or speak to a tax adviser about your own case.