Mortgage Tax

Mortgage tax comes under property tax and is imposed as the property can be considered as a source of income. The value of the property tax imposed will be derived by calculating the value of the property for which the tax will be imposed.

In India, Mortgage tax is collected under the property tax and this is done for income purposes. In India, Property is considered as a source of income and hence taxed accordingly. Properties that qualify for property tax include buildings such as flats, apartments, shops and shopping complexes and the land appurtenant to the building. According to the Income Tax Act, incomes generated from such properties are regarded as one of the sources of income. The amount of property tax levied is derived from calculating the value of the particular property that is being taxed.

The local municipal authority of a particular region is responsible for levying property tax on the properties under its jurisdiction and levies the tax for maintenance of the basic civic services it provides to the city. Different countries have different interpretations of the property tax and in countries such as the United Kingdom, it is the occupant of a particular property that has to pay the tax irrespective of whether the occupant is the owner or a tenant. In India however, the property tax has to be paid by the owner of that particular property to the civic authorities and cannot be borne by the tenant.

Property tax in India is levied on developed real estate such as fully constructed buildings or land attached to such buildings. Under this classification, the property tax cannot be attached to empty plots of land. Such undeveloped plots of land are taxed under a different head which usually is income from other sources.

The property tax levied in India can be applied to the following properties

  • Residential houses irrespective of whether the owner of the house resides at the property or has been given out for rent or lease
  • Buildings used as office establishments
  • Buildings used as factories
  • Buildings used for storage such as godowns
  • Flats r apartment complexes
  • Buildings used as retail outlets and shops

How Property Tax is calculated in India?

The tax levied against property is determined by the annual value of the property which is different based on the nature of the property. For example annual values may differ for self-occupied buildings as compared to properties that have been let out.

Annual Value of Properties that have been Let Out

For properties that have been let-out, the annual value will be equal to the maximum of the following:

The Municipal Valuation of the building

The rent received for the property let-out

Rent determined by the Income Tax department as Fair Rent

For such properties, the deductions are allowed on the interest on the loan either to repair the property, buy or rebuild the property. For the repair and maintenance of the property, a deduction of 30% is allowed on the net value of the property.

Annual Value for Self-occupied Property

For properties that are being utilized for self-occupancy by the owners, the annual value of the property is considered as zero. Even if the owner leaves the property vacant and does not let it out, the annual value is still considered as zero. Only when the property has been let out will the annual value be considered accordingly

Deductions : Loans taken out for construction or purchasing of the property are entitled to deductions on the interest. Owners will have to pay an interest subject to a max of Rs. 1,50,000 if the loan has been taken on or after April 1,1999 and loans taken prior to this date are subject to a maximum of Rs. 30,000


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