Constitutional Court Declares Section 7E Unconstitutional in Major Relief for Property Sector

In a major development for Pakistan’s real estate sector, the Federal Constitutional Court has declared Section 7E of the Income Tax Ordinance null and void, striking down a controversial tax provision imposed on immovable properties.

The Court has struck down Section 7E of the Income Tax Ordinance, 2001, declaring it ultra vires the Constitution.

The court also dismissed appeals filed by the Federal Board of Revenue (FBR) seeking restoration of Section 7E, effectively ending the tax measure that had faced legal challenges across multiple high courts.

Justice Aminuddin Khan read out the short order, holding that the levy was illegal and inapplicable. The ruling effectively removes tax liability for individuals who were previously subject to the charge on immovable assets exceeding Rs. 25 million, with an exemption for one self-occupied residential property.

The court further ruled that Section 7E, inserted through the Finance Act, 2022, is ultra vires the Constitution and therefore void ab initio. As a result, all actions, proceedings, and notices issued by the Federal Board of Revenue (FBR) under this provision have been declared unlawful and set aside.

The judgment resolves a series of constitutional challenges filed across multiple high courts. The Peshawar High Court and the Balochistan High Court had already struck down the provision as unconstitutional. The Islamabad High Court partially invalidated the law by reading down subsection (2), while the Lahore High Court initially upheld it, a decision later overturned by a division bench in intra-court appeals.

The Sindh High Court had also dismissed petitions challenging the provision. Appeals were subsequently filed by both taxpayers and the FBR, leading to consolidation before the Constitutional Court.

After extensive hearings, the court concluded that Section 7E could not stand constitutional scrutiny and allowed all petitions by taxpayers while dismissing those filed by the Federal Government and the FBR.

The decision is being viewed as a significant relief for property owners, particularly high-net-worth individuals who were previously subjected to the controversial deemed income tax on immovable assets.