If you own a house, flat, or shop in India, you need to pay the property tax every year. The tax is paid to the local municipal authority and is used to maintain amenities such as roads, streetlights, water, and garbage collection in your locality.
There are different laws governing property tax in India. This is because each municipal corporation has its own calculation formula, tax rate, payment period, and available rebates. By knowing these laws, you can calculate the tax to be paid, avoid penalties for delayed payment, and more.
In this comprehensive article, you will get to know about property tax, its calculation, people liable for paying it, and how to pay it. Let us begin this blog.
Property taxor house tax is an annual tax paid to the local governing body by the owner of the property. In India, the panchayat, municipality, or municipal corporation, as applicable, collects this tax.
This is not collected by the central government or state government bodies but is a local tax and used for spending purposes within the city or town itself. The funds collected through this tax are used for providing public utilities such as the following:
This tax applies to almost all properties, whether they are residential houses or flats or commercial or industrial buildings. An empty piece of land that does not have any construction is generally exempt from this tax; however, there are some municipalities that levy another tax called the 'vacant land tax'.
It is the property owner who will have to bear the burden of paying the tax and not the tenant or user of the property. This applies even when the property is leased out.
For example, if the property owner owns a house that another person is living in on a rental basis, the property owner alone is supposed to pay the property tax. The property tax is paid annually. In some municipalities, you can pay property tax twice a year.
It is the real estate owner who has to bear this tax burden and not the occupier residing or conducting his or her business from that property. The eligible properties are:
There is no uniform formula followed in the entire nation. Every municipality formulates its own formula for the same. However, nearly all of them follow one of the three principal formulas for property tax.
| Method | How the tax is worked out | Cities that use it |
|---|---|---|
| Capital Value System (CVS) | Tax will be a certain percentage of the market value of the property, which will be determined by the government each year according to the locality. | Mumbai (BMC), Pune, Thane, Pimpri-Chinchwad |
| Annual Rental Value System (ARV / Rateable Value) | Tax will be levied on the annual rental value of the property, as estimated by the municipality, and not on the amount of rent received. | Chennai, Hyderabad (parts), Delhi (New Delhi Municipal Council areas) |
| Unit Area Value System (UAV) | The tax will be calculated as a fixed rate per square foot per month, depending upon the location and cost of the land. | Delhi (MCD), Bengaluru (BBMP), Kolkata, Patna, Hyderabad (GHMC) |
The Capital Value System (CVS) refers to a property tax assessment system where property taxes are directly assessed as per the market value of the property.
Under the Capital Value System (CVS), property tax is levied as a percentage of the market value of the property.
The government calculates the market value of the property depending upon the location of the property, and the market value is determined once every year.
This system is followed by Mumbai's Brihanmumbai Municipal Corporation (BMC). With an increase in the market value of the property (government-notified ready reckoner rate), the property tax also increases automatically.
The ARV or Rateable Value System is an old method for collecting taxes wherein the local government authorities determine the value of the property tax. It can be collected from the property by estimating its gross annual rental value.The ARV or Rateable Value System is an old method for collecting taxes wherein the local government authorities determine the value of the property tax. It can be collected from the property by estimating its gross annual rental value.
In other words, the rental value is decided, and the tax is charged based on the annual rental that the property would normally yield. This annual rental value is determined based on the extent of the property, location, and facilities available. This system is used in Chennai and some areas in Hyderabad.
In the Unit Area Value (UAV) method, the municipal corporation establishes a per sq ft price of the built-up area every month. It is determined based on the location, the cost of land in that particular location, and its purpose, either residential or commercial.
Then the particular per sq ft rate is multiplied by the built-up area of the property to arrive at the annual value, and this annual value is made subject to taxation. The UAV system is followed by Delhi (MCD), Bengaluru (BBMP), Kolkata, Patna, and Hyderabad (GHMC).
It is the latest system of calculating property taxes wherein the basis for calculating the tax is the estimated income derived from the property in relation to its location and purpose. The UAV system is not based on subjective rental value like the ARV system but on a per sq ft rate set by the municipal corporation.
Also Read: What is Jamabandi?
As the most common system of taxation in India is the Unit Area Value system, let me explain to you the procedure through an example.
The factors and the rate differ from one city to another, but this is just the process to be followed. You may go online and find out the exact amount on your municipality's website.
No matter what system your city adopts, there are a few basic considerations that will affect the amount of tax paid:
In India, many municipalities provide the facility of payment of property tax through both online and offline systems. The property tax may be paid in the following ways:
The property tax number, khatha number, or property ID number is generally required to pay property tax. This number is usually mentioned in the property tax receipts that one has had in the past.
Property Tax in Delhi – https://mcdonline.nic.in/Real Estate
Property Tax in Haryana – https://property.ulbharyana.gov.in/
Property Tax in Uttar Pradesh – https://e-nagarsewaup.gov.in/ulbappsmain/home
Property Tax in Mumbai – https://ptaxportal.mcgm.gov.in/CitizenPortal/
There are many municipalities that give a rebate when property taxes are paid on time, typically around 5% to 10%. There are exemptions or discounts for certain people, like:
These exemptions and tax breaks differ from one region to another. The best way is to enquire at the municipal office or even their official websites in your locality.
In case you fail to pay the tax on its due date, the majority of municipalities impose a fine. This fine is generally an interest amount that ranges between 1% and 2% each month of the amount owed, although this may vary depending upon your municipality.
If your taxes remain unpaid for an extended period of time, some municipal authorities will attach your property or even sue you. The unpaid property tax amounts can also become a hurdle in selling your property. It is always a wise thing to pay your property tax on time.
The payment of property tax is an ordinary but necessary task for every property owner in India. This tax makes it possible for municipalities to provide basic utilities and services to the residents living there.
Due to the fact that different municipalities have different calculation methods and different rates. It is highly recommended to visit the official website of the concerned municipality to find out how much tax needs to be paid.
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