Property Tax

Property Tax

Property tax in India along with other indirect taxes such as Stamp Duty and Goods and Service Tax (GST) is regulated by the Income Tax Act of 1961. Under this regulation, individuals who own a property or building are required to pay property tax as per the regulations mentioned in the real estate tax regimes. The property tax is collected from property owners through the municipal corporation or local authorities.

What is Property Tax?

Property tax is a tax levied by the municipal authorities on real estate within their jurisdiction. It is based on the value of the property and is used to fund a variety of local government services, such as roads, schools, and parks. Property tax is typically paid annually but may also be paid semi-annually or quarterly. It is usually paid directly to the municipal authority by the property owner.

Property tax can vary according to location – it is defined according to the respective city or state in which the property is located. 

To make property tax easy to calculate, the Indian government has classified property into four categories. 

• Land: In this context, "land" refers to the core land that has not been improved or constructed upon.
   
• Personal property: It describes moveable man-made objects, including trucks, cars, buses, cranes, and so forth.
   
• Improvements made to land: This covers land improvements achieved by construction, such as the construction of buildings or warehouses. 
   
• Intangible property: The ownership of properties devoid of a physical component is categorised as intangible property. Copyrights, royalties, and patents are all included.

Let's take a closer look at how property tax is calculated.

How to Calculate Property Tax

Let us now look at the few guidelines and methods to calculate property tax in India:

General Guidelines to Calculate Property Tax in India

Property tax is not standard across the country; but here are the general guidelines used to calculate property tax: 

Property Tax = Base value x Building’s type x Age factor x Floor factor x Category of use x Built-up area

Different civic corporations compute property taxes in different ways. Still, the overall structure of these computations stays the same.

A property's value is determined by several factors, including:

• Location: Where is the property located? Is it in a desirable area? Is it close to amenities like schools, shopping, and transportation?
   
• Occupancy status: Is the property owner-occupied or rented out? If it is rented out, how much income does it generate?
   
• Property type: Is the property residential, commercial, or land?
   
• Amenities: What amenities does the property have? Examples include parking, rainwater harvesting, or a swimming pool.
   
• Year of construction: How old is the property?
   
• Type of construction: Is the property a single-story home, a multi-story apartment building, or a commercial complex? Is it made of pukka (strong and permanent) or kutcha (weak and temporary) materials?
   
• Floor Space Index (FSI): This is a measure of the maximum amount of floor space that can be built on a given plot of land.
   
• Carpeted square area: This is the total area of the property that is covered in carpet or other flooring.

A civic agency uses these factors to determine the appropriate formula for the calculation of property tax.

Methods of Calculating Property Tax

Any one of the following three methods can be used to calculate property tax by the municipal authorities:

• Unit Area Value System (UAS): Cities including Bengaluru, Delhi, Hyderabad, Pune, and Kolkata use this system. Under this approach, the property value is initially established by the Indian local authorities based on factors such as usage, land price, and location. To obtain the actual tax value, multiply this sum by the built-up area.  
   
• Capital Value System (CVS): Mumbai’s property taxes are assessed using this system. Under CVS, the property tax is determined as a percentage of the property's market value, based on the locality.  
   
• Annual Rental Value System or Ratable Value System (RVS): This system is followed in Chennai and some parts of Hyderabad. Under the Annual Rental Value System, first, the property’s rental value is calculated considering the property’s proximity to landmarks and other amenities. Its condition, size, and location are also taken into consideration. Finally, the tax payable is calculated on the rental value of the property. 

How to Pay Property Tax Online

Most municipalities now allow property owners to pay their property taxes online. This is usually the most convenient way to pay your property taxes, as you can do it from anywhere and at any time.

Here are the steps to pay property tax online:

• Step 1: Visit the website of your local municipal authority and log in or create an account.
• Step 2: Open the property tax payment section and enter your property tax account number.
• Step 3: Fill in the property tax form and choose your assessment year.
• Step 4: Review your property tax bill and make sure the information is correct.
• Step 5: Select a payment method and submit your payment. Upon successful payment, you will receive an e-challan.

Property Tax Rates in India

The annual property tax rate in India is determined by considering various factors depending on the location of the property. The local municipality or corporation calculates the tax on the property.

Generally, the annual property tax can range between 5-20% based on the tax rates set by the municipal authority of that region. 

FAQs

Here are some frequently asked questions about property tax:

1. When is property tax due and how often is it paid?

Property tax is typically due once a year, but some municipalities may allow you to pay semi-annually or quarterly. The specific due date will vary depending on the municipality. You can usually check your property tax bill or the municipality's website for the due date.

2. What are the advantages of paying property tax online?

There are many advantages to paying property tax online, including:

• Convenience: You can pay your taxes from anywhere, at any time, using your computer or mobile device with an internet connection.
• Speed: Online payments are processed instantly, so you can be sure that your payment has been received.
• Accuracy: Online payments are less prone to errors than manual payments.
• Security: Online payments are made through secure servers, so your personal and financial information is protected.
   

3. What happens if property taxes are not paid on time?

If you do not pay your property taxes on time, you may be charged a penalty and interest. The penalty and interest rates vary from municipality to municipality. In some cases, the municipality may even seize your property.

4. How can I get a copy of my property tax bill?

You can usually get a copy of your property tax bill from your local government's tax office or website.

5. What are the components of property tax in India?

Typically, the property tax in India includes sewage tax, general tax, environmental tax, education cess, employment tax, etc. Please note, these components can differ between cities or municipalities/corporations.

Disclaimer: The content on this page, including rates, charges, fees, commissions, brokerages, etc. is provided for informational purposes only and may not be entirely accurate/updated. It is compiled from various online sources and is subject to change. To make informed decisions, kindly consult with a relevant professional.