India is a developing nation and undergoing many tax reforms recently. Therefore it is utterly apt to know about the property tax guidelines that the current government has approved of. Let’s start with what a property tax is? A property tax is imposed on the ownership of any ‘real property.’ Property tax is levied in India on all real estate, which includes improvements made to land such as buildings or land attached to buildings.
Generally, vacant plots of land without an adjoining structure are not taxed.
Local municipal authorities assess the value of each property and levy a proportionate tax on it, which is payable on an annual or semi-annual basis. Property tax revenue is used to maintain and provide various civic amenities such as road repairs, sewage systems, lighting, maintenance of common areas such as parks, and so on. The rate of property tax and the method of valuation differ from one municipality to the other.
Property tax Guide for Indian taxpaying System
Municipal taxes in India can be paid online through the respective state government or municipal authority websites. This has simplified the previously time-consuming process of paying property taxes and allows for fast, convenient, and mobile payment.
To identify the property, the ‘property tax number’ or ‘Khatha number’ must be provided. Property tax can also be paid offline at municipal corporation offices or designated banks in collaboration with the authorities. Late payments are frequently penalized with a fine and interest based on the amount owed.
The owner of the property is responsible for paying the tax, not the occupier. It is important to note that income payable to the income tax department under the heading ‘income from house property is distinct from property tax paid to municipal authorities.
Property tax computation
Property tax is considered using one of three methods. Different municipal corporations use different systems to calculate the tax due.
- a) System of Annual Rental Value.
The amount of tax payable under this system is based on the annual’rentability’ of a property as determined by the municipal body. A reputed realtor can guide you about it thoroughly. It does not refer to the actual rent collected on the property, but rather to the capacity of gross annual rent that can be expected from being rented out. The municipal corporations of Chennai and Hyderabad have adopted this system. When determining the annual rental rate, various factors such as the size of the property, location, available amenities are considered.
- b) Capital Value-based System – In this system, the market value of the property is used as the basis for levying property tax. The government determines and revises the market value of various properties based on the ward in which they are located. For example, the Brihan-Mumbai Municipal Corporation adopted this system and now offers a ‘Ready Reckoner’ of the compilation of fair value property prices throughout the city.
- c) Unit Area Value System – This system establishes a price per unit value of the property’s built-up area or carpet area. The expected returns from the property are calculated based on this price. Many municipalities, including New Delhi, Bangalore, Kolkata, Patna, and Ahmedabad are using this system.
Though these are the general guidelines for property tax in India, there might be certain variations as per the governing states and civic bodies. Like Some municipal corporations offer exemptions from paying property taxes based on factors such as age (super senior citizens), location, individual net income, type of property, and so on. Therefore it is best to thoroughly check with the local administration for such information and to assess the property’s value with caution or hire a good legal property tax consultant and always buy property from a reputed realtor likeSukhwani constructions.