07/05/2026
On May 7, 2026, the Federal Constitutional Court (FCC) of Pakistan struck down Section 7E of the Income Tax Ordinance, 2001, declaring the tax on "deemed income" from immovable properties unconstitutional and void ab initio. The ruling invalidates the 5% tax on 20% of a property's FBR-assessed value for non-rented properties, providing massive relief to property owners and halting all FBR actions under this provision.
Key Details of the RulingCourt Action:
The FCC dismissed appeals from the Federal Board of Revenue (FBR) and declared Section 7E ultra vires (beyond the power of) the constitution.Retrospective Effect: The court ruled that the tax, which was introduced through the Finance Act 2022, is considered to have never been part of the Income Tax Ordinance.Immediate Impact: All pending and past actions initiated by the FBR under Section 7E are now considered unlawful.Scope: This ruling resolves the long-running dispute over federal authority to tax property deemed income, impacting owners of vacant plots, self-occupied homes, and multiple properties.
Background :
Before this final, binding decision by the Federal Constitutional Court, the tax faced conflicting rulings across the country, with high courts in Peshawar and Balochistan having previously declared it illegal, while the Islamabad and Lahore high courts had previously upheld it. The final verdict brings uniformity in the law across all provinces.
