A Guide to 7E (Deemed Rental Income) Exemptions

The Deemed Rental Income Tax (Section 7E) of the Income Tax Ordinance, 2001, applies to a broad range of immovable properties in Pakistan. However, several categories of individuals and properties are exempt from this tax burden. This article provides a clear roadmap for understanding these exemptions.

Who is Exempt from Section 7E Tax?

If you fall under one of the following categories, you may not be liable to pay tax under Section 7E:

  • Shaheeds and Dependents: Properties allocated to martyrs (Shaheeds) or their dependents belonging to the Pakistan Armed Forces are exempt.
  • Government Service Casualties: The tax does not apply to properties allotted to individuals who died while serving in the Pakistan Armed Forces, Federal Government, or Provincial Government.
  • War Wounded Personnel: Properties allotted to war-wounded veterans of the Pakistan Armed Forces, Federal Government, or Provincial Government are also exempt.
  • Ex-servicemen and Government Employees: This exemption extends to immovable property owned by ex-servicemen, serving personnel of the armed forces, or retired/working employees of the Federal and Provincial Governments.

Properties Exempt from Section 7E Tax:

  • Newly Acquired Properties with Advance Tax Paid: Properties acquired in the same tax year where advance tax under Section 236K has been paid by the purchaser are exempt from Section 7E tax for that specific year. The seller must provide the Computerized Payment Receipt (CPR) as proof of payment to the transferring authority.
  • Agricultural Land: Self-owned agricultural property, excluding farmhouses and annexed land, where agricultural activities are demonstrably conducted, is not subject to Section 7E tax. Property documents serve as evidence for this exemption.
  • Local Authorities and Developers: Immovable property owned by local authorities, development authorities, and registered builders and developers for the purpose of land development and construction are exempt from Section 7E tax. However, registration with the Directorate General of Designated Non-Financial Business and Professions (DNFBP) is mandatory for this exemption.

Understanding Your Exemption Status

By familiarizing yourself with these exemptions, you can determine if you qualify for relief from Section 7E tax. For a more personalized assessment and to navigate the intricacies of tax regulations, consult us.

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