What’s property tax? How to Calculation of property tax?

    What’s property tax? How to Calculation of property tax?

What’s property tax?

Property tax is levied on the ownership of any ‘real property’. In India, property tax is levied on all real estate, which consists of improvements made to land, such as buildings or land attached to buildings.

Usually, vacant plots of land without an adjoining construction are not liable to be taxed.

Who assesses the property tax?

The local municipal authorities assess the value of every property and accordingly levy a proportionate tax on the same, which would be payable on an annual or semi-annual basis. The revenue generated from property tax is used to maintain and provide various civic amenities such as road repairs, sewer system, lighting, maintenance of common areas such as parks, etc. The rate of property tax and manner of valuation differs from one municipal authority to the other.

Payment of property tax

In India, municipal taxes can be paid online on the respective state government or municipal authority websites. This has streamlined the earlier cumbersome process of payment of property taxes and allows for fast, convenient, and mobile payment.

The ‘property tax number’ or ‘Khatha number’ is to be furnished to identify the said property. Property tax can also be paid offline at the offices of the municipal corporations or designated banks in partnership with the authorities. Late payment often attracts a fine and interest based on the amount due.

The liability of paying the tax rests on the owner of the property and not on the occupier. It is important to note that income payable to the income tax department under the head ‘income from house property’ is distinct and different from the payment of property tax to the municipal authorities. (See here for more on taxability of Income from House Property).

Calculation of property tax

There are three systems for calculating property tax. Different municipal corporations adopt different systems and assess the tax due accordingly.

a) Annual Rental Value System :

 This system bases the amount of tax payable on the annual ‘rentability’ of a property as fixed by the municipal body. It does not refer to actual rent collected on the property, but rather uses the capacity of gross annual rent that it can be expected to bring from being let out. This system is being followed by the municipal corporations of Chennai and Hyderabad. Various factors such as size of the property, location, amenities available, etc. are looked into while determining the annual rental value.

b) Capital Value-based System :

 Here, the market value of the property is used as the basis on which property tax is levied. The market value of different properties is determined by the government and revised annually, based on the ward in which it is located. 

c) Unit Area Value System :

 This system fixes price per unit value of the built-up area or carpet area of the property. Based on this price, the expected returns from the property are calculated. This system is in practice in many municipalities such as New Delhi, Bangalore, Kolkata, Hyderabad, Patna, and Ahmedabad.

Some municipal corporations provide certain exemptions from payment of property tax based on factors such as age (super senior citizens), location (famine-affected areas), net income of the individual, type of property, etc. It is best to thoroughly check with the local administration for such details and assess the value of the property with caution.