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TAX ON DEEMED INCOME – Section 7E

TAX ON DEEMED INCOME – Section 7E

 

The Act has inserted Section 7E whereby a resident person shall be treated to have derived, as income chargeable to tax under this section, an amount equal to 5% of the fair market value of capital assets situated in Pakistan held on the last day of tax year.

 

The tax shall be applicable for Tax Year 2022 and onwards @20% on the deemed income (effectively 1% of the fair market value of the capital assets).

 

The Act has excluded the following assets from the list of capital assets liable to tax under this Section:

 

  • one capital asset owned by the resident person;
  • self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;
  • self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and land annexed thereto;
  • capital asset allotted to –

 

  • a Shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;
  • a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;
  • a war wounded person while in service of Pakistan armed forces or Federal or provincial government; and
  • an ex-serviceman and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;

 

  • any property from which income is chargeable to tax under the ITO, 2001 and tax leviable is paid thereon;
  • capital asset in the first tax year of acquisition where tax under section 236K has been paid;
  • where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a), (b), (c), (d), (e) and (f) does not exceed 25 million;
  • capital assets owned by a provincial government or a local government; or
  • Capital assets owned by a local authority, a development authority, builders and developers for land development and construction, subject to the condition that such persons are registered with Directorate General of Designated Non-Financial Businesses and

The Act also added a definition of “capital asset” for the purposes of this section, which means property of any kind held by a person, whether or not connected with a business, but does not include –

 

  1. any stock-in-trade, consumable stores or raw materials held for the purpose of business;
  2. any shares, stocks or securities;
  • any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization deduction under section 24; or

any movable asset not mentioned in clauses (i), (ii) or (iii)

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