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

Islamabad: The Federal Board of Revenue (FBR) has agreed to refund taxes collected on deemed income from immovable properties under Section 7E of the Income Tax Ordinance, 2001, following pressure from the LTBA Public Interest Litigation Committee (LTBA-PILC), according to Waheed Shahzad Butt, the Chairman of the LTBA-PILC. A circular has been issued by the FBR to facilitate this refund process.

The legal community commends the LTBA-PILC Chairman for this significant achievement, which will benefit taxpayers and save valuable exchequer resources that would otherwise be wasted in ongoing litigation. This development follows more than four months of correspondence between the LTBA-PILC Chairman and the FBR Chairman, following the Federal Constitutional Court's (FCC) ruling on May 7, 2026, that struck down Section 7E as unconstitutional and void from the start.

The FBR had previously issued no guidance or application format for taxpayers seeking refunds under this provision. The FBR has now instructed its field formations to process refund requests related to Section 7E revisions without rejection. Butt emphasized that the FBR's letter only addresses the refund of Section 7E, and not any potential refunds for Super Tax under Section 4C, which the FCC upheld but excluded certain exempt capital gains.

The LTBA-PILC suggests that amounts collected under Sections 7E and 4C be treated as an adjustment against taxpayers' liability for 2026, urging the FBR to provide the same expeditious treatment to outstanding Super Tax refund claims.