Overview of Section 7F
Section 7F of the Income Tax Ordinance, 2001 was introduced to levy a fixed tax regime on builders and developers in Pakistan. This section replaces the traditional method of calculating business income and introduces a simplified mechanism based on project area or unit sales.
This provision is particularly important for professionals, contractors, investors, and regulatory bodies within the construction and real estate sectors.
Original Text of Section 7F – Income Tax Ordinance, 2001
7F. Tax on builders and developers.—(1) Notwithstanding anything contained in this Ordinance, tax on the income, profits and gains of a person deriving income from the business of construction and sale of residential, commercial or other buildings (builder) and development and sale of residential, commercial or other plots (developer) shall be charged and collected in the manner and at the rates as may be prescribed.
(2) The tax under sub-section (1) shall be computed and paid either on project-by-project basis or on annual basis as the case may be and shall be final tax on the income arising from such business activity.
(3) Any expenditure incurred, deductible allowance or set off of any loss shall not be allowed under any provision of the Ordinance against the income from projects covered under this section.
How the Tax is Calculated under Section 7F
Instead of net profit, tax is calculated based on:
Per square foot or square yard rates,
Fixed percentage of revenue, or
Prescribed rate by FBR notifications.
Builders and developers pay a final tax liability, meaning no adjustments, deductions, or further income tax is applicable on that project income.
Inadmissibility of Deductions
Under Section 7F(3), no deduction of expense, allowance, or adjustment for losses is allowed. This overrides all other provisions of the Income Tax Ordinance, 2001.
This makes it a simplified, turnover-based tax, rather than profit-based.
Filing Obligations
Builders and developers must register each project with FBR.
Annual or project-wise filing is mandatory.
Withholding obligations still apply on salaries, supplies, and services.
Who is Exempt?
The following are typically not liable under Section 7F:
Individuals constructing for personal use
Agricultural plot developers
Projects initiated before the promulgation of this section (subject to FBR guidelines)
Compliance Tips
Maintain accurate project registration data with FBR
Follow withholding rules even if under final tax
Seek confirmation on rates applicable per city/project category
Benefits of Section 7F
Simplified taxation
Certainty in tax liability
One-window clearance for construction-related taxes
No audit risk on 7F income if properly declared
FAQs – Taxation under Section 7F
What is Section 7F of the Income Tax Ordinance, 2001?
It provides a fixed tax regime for builders and developers based on construction/development metrics.
Who is liable under Section 7F?
Individuals, AOPs, or companies engaged in sale of constructed buildings or developed plots.
Can expenses be claimed against Section 7F income?
No. Section 7F(3) disallows all deductions.
What tax rate applies to residential buildings?
Typically around PKR 50/sq. ft. but depends on city and type.
Is the tax adjustable or final?
It is final tax.
Can I claim depreciation on machinery used?
No. All expenses and capital allowances are ignored.
What if I have a loss on one project and gain on another?
No set-off is allowed.
Can withholding tax credits be claimed?
Only where allowed by FBR in specific cases.
Is audit applicable for 7F income?
Normally not, if declared correctly.
Do I need to maintain books of accounts?
Yes, for compliance and project monitoring.
What happens if I under-report area or sales?
Penalties and prosecution can apply.
Are government projects included?
Not usually unless it’s a private-public joint venture.
Can I claim refund against 7F tax?
No, it’s non-adjustable final tax.
Do I need to register separately with FBR for 7F?
Yes, under project registration module.
Is this applicable across Pakistan?
Yes, with different rates depending on city/category.
Section 7F offers builders and developers a predictable tax route. While it limits traditional deductions and accounting adjustments, it reduces audit risk and promotes compliance through clear-cut rates.
Professionals working in this sector should consider getting legal or tax advisory before filing under Section 7F.
Disclaimer
This blog post is intended for informational and educational purposes only. For specific tax advice or interpretation, always consult with a qualified tax consultant or refer directly to the Income Tax Ordinance, 2001 and FBR circulars.
