Property tax in India
March 19, 2019
Investing in the real estate sector attracts a lot of people; be it buying their first home or creating a source of rental income. An important aspect of buying a property is being aware of the property tax that you are liable to pay. However, a lot of people aren’t all that well-versed with what property tax entails. To help you along, here is a complete guide to property tax in India:
What is property tax?
This is a tax that is levied on the ownership of any ‘real property’. Property tax is applicable on all kinds of real estate properties and includes any improvements that have been made to the land (buildings or the land attached to buildings).
DID YOU KNOW?
Generally, vacant plots of land that do not have any adjoining construction are not liable for property tax.
By definition, the surcharge levied by the government on any real estate project, including land, is called property tax. Also known as house tax, it is a local tax which is imposed on the homeowner.
The assessment of property tax
The value of a property is assessed by the local municipal authorities and a proportionate tax is levied on the same. The rate of property tax and how the valuation is conducted can vary across different municipal authorities.
DID YOU KNOW?
Property tax is payable on an annual or semi-annual basis and the revenue generated from it is utilized in the maintenance of several civic amenities like the sewer system, roads, and in in the maintenance of common public areas like parks.
Different states have different property taxes
By law, property tax is delegated to municipalities
Property taxation may also vary among different municipalities within a state
Local bodies are given this power so they can undertake proper maintenance of common areas and provide better services to the public
Paying property tax is the liability of the owner of the property
The calculation of property tax
Basically, there are three systems that can be used for calculating property tax. Municipal corporations can utilize either of these to assess the taxes that a property owner is liable to pay.
DID YOU KNOW?
While the rates of property tax vary across municipalities, they also depend on property use- industrial, commercial, or residential.
System 1: The Annual Rental Value System
The municipal body calculates the ‘rentability’ of a property. In layman terms, this means ‘the capacity of the property to generate rent’. On the basis of that, it calculates an expected gross annual rent for the property. They look at a number of factors to arrive at this estimate, including the location, size of property, amenities, etc. This is the amount on which the payable tax is calculated.
The municipal corporations of Hyderabad and Chennai use this system at present.
System 2: The Capital Value-Based System
Under this system, the property tax is levied on the market value of the property. It is the government that determines the market value of different properties. These values are revised every year based on the ward where the property is located.
System 3: The Unit Area Value System
Here, the price per unit value of the carpet area or the built-up area is fixed. Based on this price, the municipal body calculates the expected returns from the property. Further, the tax to be levied is calculated on the basis of these expected returns. This is a popular system for property tax calculation and is followed in a number of municipalities, including Kolkata, Bangalore, and New Delhi.
There may be some cases where a municipal corporation can provide exemptions from property tax payment; based on factors like age (for super senior citizens), net income of the owner, location (if it is a famine-affected area), or type of property.
It is ideal to check the details for the same with the local administration to stay updated.
Payment of the property tax
The income that you are liable to pay to the income tax department under ‘income from house property’ is different from paying the property tax, which is to be paid to the local municipal authority.
You have the option to pay your property tax both online and offline. For offline payments, you can visit the municipal corporation’s office or a designated bank that has partnered with the authorities for property tax collection. The other way is to pay the tax online on the website of the respective municipal authority or state government.
DID YOU KNOW?
You are required to furnish the ‘property tax number’ or ‘katha number’ to identify your property. Late payment of property tax may attract a fine and an interest, basis the due amount.
The liability of paying property tax on time lies with the owner of the property and not with the occupier. Make sure you do your research and find out all the local rules that are applicable for your property. Read about the governing authority in your location, if any deductions are available for you, the properties that are covered under the tax, etc. and always remember to pay your property tax on time.