Deemed property income: FBR to refund tax collected under Sec 7E

By ISLAMABAD: Following serious efforts by the LTBA Public Interest Litigation Committee (LTBA-PILC), the Federal Board of Revenue (FBR) has decided to refund the tax paid/collected on account of deemed income on immovable properties under Section 7E of the Income Tax Ordinance, 2001, according to Waheed Shahzad Butt, the Chairman of the LTBA-PILC. In this regard, a circular has been issued by the FBR. The legal fraternity is thankful to the LTBA-PILC Chairman for this landmark achievement, which will not only facilitate taxpayers but will also save huge exchequer resources that would otherwise have been wasted in futile litigation, the Chairman of the LTBA-PILC said. The development follows more than four months of correspondence in which the Chairman, LTBA-PILC, repeatedly wrote to the FBR Chairman, routed through FBR Members, seeking a notified refund procedure after the Federal Constitutional Court (FCC), vide its order dated 07.05.2026, struck down Section 7E in its entirety as unconstitutional and void from inception, setting aside all notices and proceedings initiated under the provision introduced through the Finance Act, 2022. Despite the binding constitutional pronouncement, the Board had neither issued guidance nor prescribed an application format or forum for filing such claims, a silence that, as reported on August 31, 2026, had placed taxpayers in an untenable legal and financial position. Vide letter dated 23.09.2026, addressed to all Chief CIR (LTOs, CTOs, RTOs), the FBR has directed field formations that requests received from taxpayers for revision of returns, filed in light of the FCC's order, 'shall not be rejected.' The letter further directs that where revision of return results in a refund becoming due, the subsequent refund application 'shall also be processed expeditiously, in accordance with the applicable law and procedure.' The LTBA-PILC Chairman termed this a landmark achievement, noting that the Section 7E refund universe is potentially very wide given that the provision was struck down in its entirety, covering all properties valued above Rs25 million that were subjected to the five percent deemed-income levy on FBR-assessed fair market value. At the same time, Butt cautioned that the FBR's letter is confined strictly to the 'single agenda item' of Section 7E revisions and refunds, and 'shall not be construed as having any application beyond the matter specifically addressed herein.' He pointed out that the parallel demand concerning Super Tax under Section 4C, where the FCC upheld the provision's validity but excluded certain exempt capital gains, including gains on immovable property held beyond the prescribed holding period, inherited property, and other exempt income, remains unresolved, and FBR has yet to notify a refund mechanism for those collections. Butt reiterated LTBA-PILC's earlier suggestion that, pending a full policy-level refund system, amounts collected under 7E and 4C be allowed as an adjustment against taxpayers' liability for 2026, and urged the FBR to extend the same expeditious treatment now assured for Section 7E to the outstanding Super Tax refund claims. Copyright Business Recorder, 2026