FBR Orders Processing Of Section 7E Tax Refund Claims

The Federal Board of Revenue (FBR) has instructed its field offices to process refund claims involving tax paid or collected under Section 7E of the Income Tax Ordinance, 2001, following a court ruling that declared the deemed-income tax on immovable properties unconstitutional.

In a letter issued on September 23, 2026, to Chief Commissioners Inland Revenue at Large Taxpayer Offices (LTOs), Corporate Tax Offices (CTOs) and Regional Tax Offices (RTOs), the FBR directed that taxpayers seeking to revise their returns in accordance with the Federal Constitutional Court (FCC) ruling “shall not be rejected.”

The FBR further instructed that where a revised return creates a refund entitlement, the related refund application should also be processed promptly in accordance with the applicable law and procedure.

The instructions came after more than four months of correspondence between the tax authority and the Lahore Tax Bar Association’s Public Interest Litigation Committee (LTBA-PILC), which had been seeking a formal procedure for taxpayers to claim refunds following the court ruling.

In its May 7, 2026 order, the FCC struck down Section 7E in its entirety, declaring it unconstitutional and void from inception. The court also set aside notices and proceedings initiated under the provision introduced through the Finance Act, 2022.

Despite the ruling, the FBR had not previously specified an application format or designated a forum through which affected taxpayers could submit refund claims. The LTBA-PILC therefore repeatedly raised the issue with the tax authority.

Section 7E imposed a 5% deemed-income tax based on the FBR-assessed fair market value of immovable properties valued above Rs25 million. Following the provision’s complete invalidation, the LTBA-PILC said the number of taxpayers potentially eligible for refunds could be substantial.

The committee described the FBR’s latest instructions as an important development for taxpayers, saying that a defined route for obtaining refunds could also help prevent further litigation over amounts collected under Section 7E.

However, the FBR clarified that its September 23 instructions are limited specifically to revisions and refunds related to Section 7E and “shall not be construed as having any application beyond the matter specifically addressed herein.”

The LTBA-PILC also pointed out that a separate matter concerning Super Tax under Section 4C remains unresolved.

Although the FCC upheld the validity of Section 4C, the committee said the judgment excluded certain exempt capital gains, including gains from immovable property held beyond the prescribed holding period, inherited property and other exempt income.

According to the committee, the FBR has yet to establish a mechanism for processing refunds arising from those collections.

The LTBA-PILC repeated its earlier proposal that, until a comprehensive refund procedure is introduced, amounts collected under Sections 7E and 4C should be permitted as adjustments against taxpayers’ liabilities for 2026.

The committee also urged the FBR to extend the expedited treatment now available for Section 7E refund claims to outstanding Super Tax refund claims.