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 –
- any stock-in-trade, consumable stores or raw materials held for the purpose of business;
- 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)