What Is Property Tax And How Is It Calculated
What is Property Tax?
Understanding how property taxes are calculated is often one of the most confusing challenges for homeowners. This is a tax, which is charged by the local government on real estate including land owned by you. The value of property forms the basis of this tax. Many local governments calculate the property or house tax not only based on the size of the property but its location, occupancy status, covered area and quality of construction.
As it has been a vital part of Indian taxation system, no city or village is exempted from paying it. Farmers, peasants, and landowners in remote villages are also liable to pay this amount to the local authority, in absence of which a penalty is imposed and be confiscated if the owner kept defaulting over a long period.
The money generated through this tax is used by the government to maintain the infrastructure and for purposes like repairing of roads, snow removal, building schools etc.
Property tax is not always identical; it is different in different states. It is further delegated to the municipalities by law, which results in various property taxation ways between different municipalities within the states. To maintain the public services properly, this power is given to the local bodies however; the liability to pay tax is with the owner of the property.
Types of Property Tax
The Indian government classifies properties into four categories to make tax computation easy. These are:
- Land: Unimproved land without any man-made structures.
- Improvements to land: Man-made immobile constructions like warehouses and buildings.
- Personal property: Man-made vehicles such as cars, trucks, buses, etc.
- Intangible Property: Untouchable properties like royalties and patents.
How is Property Tax Calculated?
Property Tax in India is mainly calculated in three factors.
Annual Rental Value or Rate-able Value or ARV :
ARV is a system in which the gross annual rent of the property is fixed by the municipal body and taxes would be levied based on the estimated value. The rateable value may depend on: Size of the property Location Proximity of the property to certain landmarks, locality Condition of the premises, amenities provided.
For example For Calculating Property Tax in Chennai is the first thing to do is to arrive at the annual value of the property. This can be done by calculating the monthly rental value.
Monthly rental value = Plinth Area x Basic Rate per sq ft
Annual rental value = Monthly rental value x 12 – 10%.
NOTE: Delhi follow the Annual Rental System
Capital Value System or CVS :
CVS is where the market value of the property would be used to estimate the taxes to be paid. Generally, this market value is fixed by the stamp duty department of the area. Mumbai follow this system.
Here’s the formula used by Brihanmumbai Municipal Corporation-
Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor
Generally, you need to ascertain the value of property fixed for your zone and multiply it with the carpet area of your house.
Unit Area System or UAS:
The Unit Area Value is based on the expected returns from the property depending on the location and usage of the property. Since the unit of calculation is based on per square foot per month (UNIT) and for a particular location, street, (AREA) and multiplied by a rate (VALUE).
In New Delhi, Bangalore, Kolkata, Hyderabad, Patna and Ahmedabad property tax is calculated by fixing a price for per unit value of the area.
The Municipal Corporation of Delhi has developed an online calculator to evaluate property tax on the basis of the type of location, type of construction and amenities available around. It also factors in the annual value of the property which is derived through following formula-
Annual Value = Covered Area x Unit Area Value x Age Factor x Use Factor x Structure Factor x Occupancy Factor
However, Delhi government has given a rebate to certain classes of citizens like senior citizens, women, physically challenged, ex-serviceman, group housing flat owners and CGHS Flat owners. This rebate is as high as 30 per cent of the property tax.
As Property Tax serves to be the major source of revenue generation of urban local bodies and municipalities in order to keep intact the basic civic services in the city, it is our prime responsibility to pay this tax with full honesty.
Property tax Calculation in India
Different states in India use different mechanisms for property tax calculation.
Property tax Pune
The Pune Municipal Corporation (PMC) provides an online property tax calculator, in which you can fill the following details to auto-calculate your property’s tax amount:
- Location
- Area
- Usage
- Type
- Total plinth area
- Construction year.
Property tax Mumbai
The Bombay Municipal Corporation (BMC) follows the Capital Value System (CVS) to assess property tax. BMC calculates the property tax as a product of the Capital value of property, Current property tax rate (%) and Weight for user category.
The Maharashtra government has exempted residential accommodations up to 500 sq ft, within the Mumbai municipal area limits, from property tax. Mumbaikars can pay their MCGM property tax by using the “Property tax bill online Mumbai” facility.
The Navi Mumbai Municipal Corporation (NMMC) collects the property tax at a certain percentage of the rateable value of the property.
Property tax Bengaluru
The Bruhat Bengaluru Mahanagara Palike (BBMP) follows a Unit Area Value (UAV) system, for calculating the property tax amount.
Property Tax (PT) = (G – I) * 20%
Where, G = A + B + C and I = G * H/100
G = Gross unit area value
A = Tenanted property area * Per sq ft property rate * 10 months
B = Self-occupied area of property * Per sq ft property rate * 10 months
C = Vehicle parking area * Per sq ft vehicle parking area rate* 10 months
H = Depreciation rate percentage, depending upon the property age
Property tax Delhi
The Municipal Corporation of Delhi (MCD) uses the Unit Area System (UAS) to assess property tax all over the city. MCD calculates property tax as a product of annual value and rate of tax. Annual value is a product of unit area value per sq metre, unit area of the property, age factor, use factor, structure factor * occupancy factor.
Property tax Chennai
The Greater Chennai Corporation (GCC) uses the Reasonable Letting Value system (RLV) for assessing annual property tax. The GCC considers the following factors:
- Plinth area
- Basic rate of the street in which the property is situated
- Building usage (residential or non-residential)
- Nature of occupancy (owner or tenant)
- Age of the building
Property tax Hyderabad
The Greater Hyderabad Municipal Corporation (GHMC) follows a taxation slab rate for residential properties.
The GHMC uses the following formula to determine the property tax:
Annual property tax = Plinth area of the property* Monthly rental value per sq ft * 12 * (0.17 to 0.30 - depending on MRV and based on taxation slab rate) – 10 percent depreciation rate + 8 percent library charge
Property tax Ahmedabad
The Amdavad Municipal Corporation (AMC) determines the payable property tax based on its capital value. The formula for the calculation of property tax is as follows:
Property tax = Area * Rate * (I1 x I2 x I3 x I4 x In)Where,
I1 = importance given to the location of the property
I2 = importance given to the type of property
I3 = importance given to the age of the property
I4 = importance assigned to residential building
In = importance assigned to the user of the property
How to Pay Property tax Online
If you wish to pay your property tax online, follow these steps:
- Visit the official website of your city and state municipality.
- On the web portal, you will find the “Property Tax” option.
- Select this button and go to the “Payments” option.
- Enter all the required details in the property tax form.
- Enter the correct year of assessment.
- Choose the payment option convenient to you.
- Make the payment and receive the automatically generated e-challan.
Ensure that you fill in all details correctly and cross-check before submitting the application.
Interest in Property Tax
Interest on property tax is applied to late payments and can lead to fines based on a percentage of the overdue amount. The specific interest rates vary among states, with some opting to waive the fee, while others impose rates ranging from 5% to 20%, dictated by their unique policies. Property owners should be aware of their state's regulations to avoid potential financial penalties.
Income Tax Exemptions under Section 24
Income Tax Exemptions under Section 24 are as below:
- Standard Deduction: This allows a tax exemption of up to 30% of the net annual value, excluding individuals occupying their sole property.
- Interest Deduction on Home Loan: Section 24 exempts interest on the principal amount of a home loan, with a cap of INR 2,00,000 for self-occupied properties.
- No Deduction for Brokerage or Commission: The Income Tax Act does not permit deductions for brokerage or commission related to loan or tenant arrangements.
- Timeframe for Exemption: Individuals must complete house construction or purchase within 3 years of the loan tenure to claim the full INR 2,00,000 exemption; otherwise, only INR 30,000 is applicable.
Deduction under Section 80C
The deduction under Section 80C applies to homeowners who possess only one house property at the time of loan sanction. To qualify, the value of the home loan availed should be below ₹35,00,000, and the property's value must not exceed ₹50,00,000.
This provision encourages homeownership by providing tax benefits to those meeting the specified criteria. Homeowners can claim deductions under Section 80C, thereby reducing their taxable income and fostering affordability for individuals with moderately valued properties. It serves as a targeted incentive within the income tax framework to support and promote home ownership in a specified economic bracket.
FAQ's
Is property tax decided by the central government?
Property tax is set by local administrations, primarily urban bodies like Municipal Corporations. These entities, such as Municipal Corporations, determine tax rates based on factors like property value and local regulations. They play a pivotal role in property tax assessments by ensuring adherence to regional guidelines and contributing to local governance structures.
Is there any way I can get exemption from property tax?
Property tax exemptions hinge on factors like age, net income, property type, and location (especially in famine-affected zones). Public service history and the value of taxable property are also considered. Vacant land plots typically enjoy exemptions. For specific details and eligibility, it's recommended to check with the local administration.
Why is my property tax assessment higher than the value of my property?
If you're uncertain about your property's market value or suspect assessment errors, reach out to your local administration for clarification. Examining the tax bill can offer insights into the reasons behind the high tax amount. Seeking assistance from local authorities ensures accurate information and may help address concerns regarding property tax assessments.
What will happen if I fail to pay property tax in India?
Failure to pay property taxes may result in penalty charges, varying by state. In severe instances, persistent non-payment, even after official notice, could lead to imprisonment or stringent government actions against the property owner. It's crucial to address property tax obligations promptly to avoid legal consequences and ensure compliance with state regulations.
How much of house property is free from tax?
Property owners with a property value (Gross Annual Value) below INR 2.5 lakh are exempt from tax payments on rental income. However, if rental income is the primary source of an individual's earnings, they may become liable to pay taxes. Property owners need to be aware of these thresholds and consider their overall income sources to determine their tax obligations concerning rental income.
Who is exempt from paying real property tax?
Convents, mosques, charitable institutions, parsonages, churches, and properties used solely for educational, charitable, or religious purposes are exempt from property taxes. This exemption recognizes the societal contributions of such entities and ensures that resources dedicated to these purposes remain directed toward their intended goals without the burden of property taxation.
Is there any exemption of property tax for women?
The Government of India provides financial incentives to empower women across the country. Women who own houses can enjoy property tax rebates, along with additional benefits like stamp duty concessions, credit subsidies for housing, and lower interest rates on home loans. These measures aim to support and encourage women in property ownership, fostering economic empowerment and financial independence.
How much is the property tax in India?
The property tax rate in India fluctuates from state to state, typically ranging between 5% and 20%. This variance reflects the diverse tax policies implemented by different states, contributing to the overall variability in property tax percentages across the country. Property owners should be aware of the specific rates applicable in their respective states to ensure accurate financial planning and compliance with local regulations.
Is local property tax to be paid every year?
Yes, local property tax must be paid annually. For residential property owners, the Local Property Tax (LPT) is due on November 1st each year. This recurring obligation ensures consistent funding for local services and infrastructure, and property owners are expected to fulfil this financial responsibility by following the specified deadlines.
Who is liable to pay property tax?
The responsibility to pay property tax falls on the owner, joint owner, or an individual physically residing on the property. In instances of joint ownership, the primary owner must nominate the joint owner as the designated person responsible for property tax payments. This ensures clarity and accountability in meeting property tax obligations, particularly when multiple individuals share ownership of the property.
Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.