Section 7E of the Income Tax Ordinance, 2001 (ITO) was introduced in the Finance Act, 2022. This section provides for deemed income on capital assets situated in Pakistan. Under this section, every resident person is treated as having derived income equal to 5% of the fair market value of the capital asset, subject to certain exclusions. This deemed income is chargeable to tax at a rate of 20% (effectively 1% of the fair market value of the capital asset).
The following are some of the key provisions of Section 7E:
- The deemed income is only applicable to capital assets situated in Pakistan.
- The deemed income is not applicable to certain capital assets, such as agricultural land, residential property used for own residence, and property used for business purposes by a filer.
- The deemed income is calculated on the fair market value of the capital asset. The fair market value is the price that the capital asset would fetch if it were sold on the open market on the valuation date.
- The deemed income is chargeable to tax at a rate of 20% of the 5% of the Fair Market Value. This means that for every Rs. 100 of deemed income, the tax liability is Rs.1.
Section 7E has been met with mixed reactions. Some people believe that it is a fair way to tax capital assets, as it ensures that people who own valuable assets are paying their fair share of taxes. Others believe that it is an unfair tax, as it does not take into account the actual income that is generated from the capital asset.
It is still too early to say what the long-term impact of Section 7E will be. However, it is clear that this section has the potential to significantly increase the tax revenue from capital assets in Pakistan.
Here are some additional things to keep in mind about Section 7E:
- The deemed income under Section 7E is in addition to any other income that is derived from the capital asset. For example, if a person owns a property that is rented out, they will still have to pay tax on the rental income, as well as the deemed income under Section 7E.
- The deemed income under Section 7E is not subject to any deductions or exemptions. This means that the full amount of the deemed income is taxable.
- The deemed income under Section 7E is payable even if the capital asset is not sold. This means that people who own valuable assets will have to pay tax on the deemed income, even if they do not actually receive any income from the asset.
If you have any questions about Section 7E, you may ask in comment section
