The Finance Act 2024 has introduced a pivotal change in Pakistan’s tax landscape with the insertion of Section 7F into the Income Tax Ordinance, 2001. This newly enacted provision establishes a presumptive tax regime for builders and developers, aiming to simplify compliance, reduce litigation, and bring greater transparency to the real estate sector.
What Is Section 7F?
Section 7F applies to individuals, associations of persons (AOPs), and companies engaged in:
- Construction and sale of residential, commercial, or other buildings
- Development and sale of residential, commercial, or other plots
- Combined activities involving both construction and development
- This section prescribes a fixed taxable profit rate based on gross receipts, replacing the traditional net income approach.
Prescribed Taxable Profit Rates:-
| Activity Type | Taxable Profit (% of Gross Receipts) |
| Construction & Sale of Buildings | 10% |
| Development & Sale of Plots | 15% |
| Combined Construction & Development | 12% |
The tax is then computed on the presumed profit using the applicable rates under Division I or II of Part I of the First Schedule of the Ordinance.
Advance Tax and Finality:
Income taxed under Section 7F is treated as final tax liability, meaning:
- No obligation to pay advance tax under Section 147
- No further tax adjustments or deductions allowed
Strategic Implications:
For professionals and businesses in the real estate sector, Section 7F offers:
- Predictability in tax liability
- Reduced disputes over cost allocations and profit margins
- Streamlined documentation for source of funds and compliance
However, it also demands accurate reporting of gross receipts and clear segregation of activities to ensure correct application of profit rates.
Final Thoughts
Section 7F marks a significant shift toward simplified taxation for builders and developers in Pakistan. While it offers relief from complex accounting and audit disputes, it also places the onus on taxpayers to maintain transparent records and align their operations with the prescribed framework.
By Saifullah August 2025