Islamabad, August 17, 2025 – The Federal Board of Revenue (FBR) has officially released the tax rate applicable to deemed property income for the tax year 2025–26, continuing the government’s policy of discouraging the use of idle assets and broadening the tax base.
Under the recently updated Income Tax Ordinance, 2001, deemed property income is taxed at a flat rate of 20 percent under Section 7E. The amendment forms part of the government’s wider agenda to capture untaxed wealth and to bring underutilized real estate assets into the formal economy.
What is “deemed income”?
The concept of deemed income was introduced through the Finance Act 2022. It essentially assumes that individuals holding large and expensive properties are generating a notional or “deemed” return from those properties, even if they are not rented out. To ensure fairness, certain exemptions apply, but where applicable, the law treats five percent of the fair market value of property as taxable income.
For example:
• If a person owns urban land worth Rs. 100 million (excluding exemptions), the deemed income will be Rs. 5 million.
• At the prescribed rate of 20 percent, the tax liability becomes Rs. 1 million.
This approach discourages speculative property holding and encourages people to either utilize, rent, or dispose of non-productive assets.
Exemptions under Section 7E
Not every property falls under the deemed income regime. The law makes clear exclusions, such as:
• One self-owned residential property.
• Self-owned business premises of active taxpayers.
• Agricultural land (excluding luxury farmhouses).
• Properties allotted to martyrs’ families, war-wounded personnel, and certain government employees.
• Properties where regular rental income is already taxed.
• Properties valued collectively below Rs. 25 million.
Why does this matter?
👉 For taxpayers: Those holding high-value plots, houses, or commercial properties need to carefully assess whether they fall under the deemed regime. Ignoring this provision may lead to heavy penalties.
👉 For property investors: Holding multiple properties purely for appreciation may no longer be tax efficient. Owners must now consider whether to rent them out, sell them, or pay the deemed income tax annually.
👉 For the government: The regime is designed to plug loopholes in the property sector, which has historically been a haven for undocumented wealth.
Common questions
Q1: Does every property owner pay this tax?
No. One self-occupied house, active business premises, and agricultural land are generally exempt. Only surplus or high-value properties come under the deemed income net.
Q2: What if my property generates rental income?
If you are already paying tax on actual rental income, the property is excluded from the deemed income regime.
Q3: What if my property is newly purchased?
In the first year of acquisition, if tax under Section 236K has been paid, the property is exempt from deemed taxation.
Policy outlook
Tax experts believe that the continuation of the deemed income tax for 2026 signals the government’s intent to expand revenue collection without imposing higher rates on salaried classes. By targeting idle assets, authorities hope to make the tax system fairer. However, critics argue it may discourage investment in real estate and could impact market liquidity.
With the tax rate fixed at 20 percent and exemptions clearly outlined, individuals are advised to review their asset portfolios ahead of filing their tax returns. Professional guidance can help avoid disputes and ensure compliance with Section 7E.
✅ Key takeaway: If you own high-value property in Pakistan, check whether you fall under the deemed income rules for 2026—non-compliance could prove costly.
(Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. The provisions regarding deemed property income, exemptions, and tax rates may be subject to amendments or official clarifications by the Federal Board of Revenue (FBR) or the Government of Pakistan. Readers are advised to consult with qualified tax professionals or the FBR’s official notifications before making any financial or legal decisions.)