Property Tax

Property tax is charged by the government on all tangible real estate that an individual owns. These real estate assets could include residential homes, office buildings and premises rented out to third parties.

Human life revolves around fulfilling a few basic needs, needs without which our lives could come to an abrupt end. We spend most our lives trying to further our cause, working hard to reach certain goals. Perhaps the three most basic needs we have are Food, clothing and shelter, not necessarily in the same order. A life without these three constituents would be incomplete and the struggles to satisfy these needs are evident in our day to day life. A home is what everyone wishes to acquire someday, with owning a property being the ultimate goal for millions across the globe.

In a country like India, owning property is akin to owning a goldmine, with properties being considered the safest and smartest form of investment today. A property provides us with a sense of security, a place where an individual can be true to himself/herself, a place which symbolises a level of achievement.

What is Property Tax?

Taxes are the primary source of income for a government, with the taxes earned dictating the resources available to citizens. Every property is an asset which is taxable and the property tax is an annual amount paid by a property/land owner to the government. This tax could be paid either to the local state government or Municipal Corporation, depending on government policies.

Property Tax

The word “property” in this context refers to all tangible real estate under the ownership of an individual and includes houses, office buildings and premises rented to third parties. Property tax, as a concept has been around for centuries and is acknowledged across the globe, with records of farmers and peasants paying tax on their properties even in the middle ages.

Property Tax in India:

Brief History:

Property tax has a deep rooted history in India, finding a mention in epics like Manu Smriti and Arthasastra, which spoke about different tax measures in place at that time. Kings would levy a small tax on farmers and landowners, which would be used to enhance the treasury of a kingdom. The advent of the British brought in a more streamlined process, with land revenue forming a major chunk of the British treasury. They devised a system of centralization with respect to land tax, appointing individuals to collect tax on behalf of the crown. This gave birth to tax collectors and a formal tax collection system in the country.

Types of Property:

Property, in India is classified into four categories, which help the government estimate tax based on certain criteria. The different property divisions in the country are mentioned below.

  • Land – in its most basic form, without any construction or improvement.
  • Improvements made to land - this includes immovable manmade creations like buildings and godowns.
  • Personal property – This includes movable man made objects like cranes, cars or buses.
  • Intangible property

Present State of Property Tax:

Property tax in India is to be paid on “real property”, which includes land and improvements on land, with the government appraising the monetary value of each such property and assessing the tax in proportion to its value. It is the duty of the municipality of a particular area to do this assessment and determine the property tax, which can be paid either on an annual or semi-annual basis. This tax amount is used to develop local amenities including road repairs, maintenance of parks and public schools, etc. Property tax varies from location to location and can be different in different cities and municipalities.

Tax Deductions against Income from Property

Section 24 is titled as “Deductions from income from house property”. ‘Income from house property’ is applicable in the following cases:

  • If you are renting out your house(s), then the rent received will be considered as part of your income
  • If you have more than 1 house, then the Net Annual Value of the houses, except the house you are living in, will be considered as your income.
  • If you own only 1 house and you are living in it, the income from house property will be considered as NIL. Any income derived from rent and annual value of additional houses, will be subject to tax after deductions made under Section 24.

Deductions under Section 24

There are 2 types of deductions under Section 24 of the Income Tax Act:

  • Standard deduction: This is an exemption allowed to every taxpayer, where a sum equal to 30% of the net annual value does not come under the tax limit. This is not applicable if you are occupying the only house you own.
  • Interest on loan: If you have taken a home loan for purchase, construction or renovation of the house, whatever interest you pay on the principal amount of the loan is exempted from tax payment. The sub-clauses in this category are:
    • If the loan has been taken for a self-occupied property, then you can claim exemptions of up to Rs.2 lakh.
    • If you took a loan for purchase or construction (not renovation) of a property before actually buying or completing its construction, you can still claim the interest. You can seek deductions on the interest paid before the construction or purchase is completed, in 5 equal instalments, from the year in which the house is bought or the construction is completed.
    • If the loan is taken for renovation or reconstruction of a house, you cannot claim tax exemption until the renovation is completed.

To avail this deduction, you need to compute the interest amount you have to pay to the bank or financial institution that you took the loan from, separate from the principal repayment. It does not matter whether you have actually paid the amount to the financier – you can get exemption for the complete annual interest amount.

Exceptions under Section 24

  • If the house is not occupied by you, you can claim exemption for the whole interest amount that you are paying, without any upper limit.
  • If the house is not occupied by you because you live in another town due to your employment or business,or you live in another property or rented property in the city of your employment, then you can claim tax exemption on interest payment only up to Rs.2 lakh.
  • There is no deduction for any brokerage or commission for arranging the loan or tenant.
  • You have to buy or complete construction of the house within 3 years of taking the loan for you to be able to claim maximum deduction on the loan interest amount. If the construction or purchase is not complete within 3 years, you will be able to claim only Rs.30,000 instead of Rs.2 lakh.
  • You must have an interest certificate for the loan that you are taking.

Computation of Income from House Property

Understanding income from house property can be tricky. To make it simple, here are a few things to keep in mind:

  • Only the Net Annual Value of your house(s) is considered for taxation. Net Annual Value is arrived at when you deduct the municipal taxes paid on the property from the gross annual value of the house. For example, if you are receiving Rs.1.2 lakh as rent annually on a house you have let out, and you are paying Rs.40,000 as municipal taxes, then the Net Annual Value of your house is Rs.80,000, and you have to pay tax only on this amount.
  • If your house(s) is lying vacant for any period during the financial year due to lack of tenants, you have to consider only the income received as rent and not compute it against the whole 12 months. For example, if a house yielding Rs.17,000 as rent is vacant for 4 months of the fiscal year, then the gross value of the house will be Rs.1,36,000 (Rs.17,000 * 8). Tax payable on this income will be calculated after deducting the municipal tax amount paid and the standard deduction of 30%.
  • If your house(s) is lying vacant and not giving you any income, but you are paying municipal taxes, you can offset this loss against income from other sources – such as your salary or rent from any other property – during the same fiscal. If you are unable to offset the loss in the same year, you can carry forward this loss for up to 8 years.

Property Tax Online

Property Tax in India can be paid online. Each state or municipal has its own website for online payment of property tax, these sites require the assesse to furnish their Property Tax number or Khatha number or the revenue survey number. Assesses should take note of the following while filing their property taxes online:

  1. If the property tax return for the previous year has not been filed, property tax for the current year shall be accompanied with the return and dues, if any for the previous years.
  2. Additional Depreciation cannot be claimed for the year 2017-18 and 2018-19 as depreciation can be claimed once in a block period, i.e. from 2016-17 to 2018-19
  3. If revised return for any year has been filed, then the return for the current year shall be on the basis of revised return filed.
  4. In case if any tax was paid in advance and after adjusting for the tax for the previous years, if there is still a balance, it will be paid back through Cheque or DD after due verification.
  5. If property tax is paid in two instalments for the current year, then same form is used for second instalment.
  6. 5% rebate on total property tax to be paid could be availed, if you are paying full amount in one instalment.
  7. If you are making payment for previous years (arrears payment), payment shall be made after generating challan for each previous year.
  8. Right now you can make the payment towards your property tax if you already paid the property tax at least once, by using your SAS BASE APPLICATION NUMBER or PID NUMBER. If you are paying the property tax for the first time kindly wait for a while.
  9. If you are a defaulter, system calculate the interest automatically for the defaulted period at the rate of 2% per month.
  10. If you are paying through DD or CASH, receipt could be generated instantly. But for the payment through cheques, receipt can be generated only after the realization of the cheque amount.

How to Pay Property Tax Online:

The internet has made a huge impact on how the world functions, opening new doors and simplifying lives. Paying property tax was considered a huge hassle in the past, but those days are long gone, thanks to the option of paying property tax online. Most municipal corporations provide the option of paying property tax online, streamlining the process and saving valuable time.

Individuals wishing to pay their Property Tax Online need to follow the following steps:

  1. Log onto the official website of their municipality/city corporation.
  2. Choose the tab indicating property tax and navigate to the payment option.
  3. Choose the right form (either 4 or 5), based on the category under which an individual’s property falls. These forms are used to determine if any changes have been made to a property in question.
  4. Choose the assessment year. This is the year for which property tax needs to be calculated and paid. Most corporations provide an option to clear backlogs in property tax payment.
  5. Individuals will then be required to fill in their property identification number and any other relevant document pertaining to their property (zone under which it falls, property type, etc.) including the owner’s name.
  6. Once all relevant information has been entered, individuals can choose the mode of payment, which could be credit/debit cards or internet banking.
  7. Once payment is made individuals can take a print out of the challan for their reference.

Note: These are the basic steps involved in paying property tax online and could vary depending on the city/town corporation.

Property Tax Calculation:

Property tax in India depends on the location of a property in question, with taxes varying from state to state. Different civic corporations use different methods to calculate tax, but the general overview of such calculations remains the same and is explained below.

An assessment of the property is first carried out by determining the area it is in, occupancy status (whether it is self-occupied or rented out), type of property (residential, commercial or land), amenities provided (car park, rainwater harvesting, store, etc.), year of construction, type of construction (multi-storied/ single floor/ pukka or kutcha structure, etc.), Floor space index and carpeted square area of the property.

Once these parameters are determined the civic agency can use a formula it deems fit to calculate tax. Different agencies use different formula.

The formula used by Mumbai Municipal Corporation is given below:

Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor.

The tax on a property will vary according to the factors mentioned above and can be easily computed online, through the official website of the municipal corporation concerned.

Interest on Property Tax:

Late payments towards property tax can attract a fine, generally equivalent to a certain percentage of the amount due. This interest varies from state to state, with some states choosing to waive off such interest and others charging rates from 5% to 20%, depending on their individual policies.

For Example:

Some states waived off penalties on property tax while Bangalore decided to slash interest for late payments from 20% to 10%, in a bid to get more people to pay their dues.

Section 80C and Property Tax:

Individuals who purchase a new house can claim deductions under section 80c of the Income Tax Act. Under this clause, deductions can be claimed for stamp duty and registration charges, which could add up to around 10% of the total cost of a house. Deductions claimed under this section are subject to the condition that they do not exceed Rs 1.5 lakh.

Individuals can also claim a deduction towards any other expense during the process of transfer of property. Homeowners should keep in mind that this is applicable only for new residential properties.

Capital Gains Tax on Property:

Capital gains tax refers to the tax levied on the profit which is the outcome of a property sale. Capital gains tax can be a major source of wealth drain if not handled smartly. A simple way to handle this is to purchase a new house from the proceeds of a property sale, keeping in mind that such property should be purchased within two years of sale. Proceeds from a property sale can also be used to construct a house, ensuring that capital gains tax on property doesn’t become too taxing.

Frequently Asked Questions: Property Tax

  1. Is property tax decided by the central government?

    A) No. Property tax is determined by your local administration – that is, urban local bodies such as Municipal Corporation and similar organisations.

  2. My house owner says I as a tenant should pay the property tax. Is that legal?

    A) No. In certain countries tenants are liable to pay property tax but in India the house owner has to pay the tax. If your house owner is forcing you to pay this amount, then you can sue him in the civil court.

  3. Is there any way I can get exemption from property tax?

    A) You may get a property tax exemption based on your age (if you are a super senior citizen, for example), net income of the individual, type of property, location of property (if it is located in a famine zone or such affected regions), history of public service or value of the taxable property. If you have a vacant plot of land, you don’t have to pay property tax on it. You need to check with your local administration for the details.

  4. Why is my property tax assessment higher than the value of my property?

    A) Either you are not aware of the market value of your property, or your assessment is wrong. It is best to approach your local administration and clarify. The tax bill will also give you a clue on why the tax amount is high.

  5. Can I make property tax payments online?

    A) This depends on your municipal authority. If they allow online payment of property tax, you can make use of that facility. Bengaluru, for example, has recently started allowing property tax payments online.

News About Property Tax

  • SDMC residents can access property tax records online

    Shyam Sharma, the Mayor of South Delhi said that the residents of the South Delhi Municipal Corporation can update their property tax records online using the Link Your Record facility on the corporation’s website. This facility will enable taxpayers to easily access and update their property tax payment details. Residents have to enter their Unique Property Identification Code to update their tax records and choose either the online or offline mode for updates. In the online mode, residents have to enter their property ID and receipt number of the tax paid. In the offline mode, the taxpayer has to enter G-8 receipt number and upload the tax receipt. Property taxes that were paid in the online and offline mode will be linked together with a single ID. UPIC cards have been issued to 80% of the residents in SDMC. UPIC IDs have already been generated for properties for which taxes were paid in FY 2014-15.

    16 January 2017

  • Property taxpayers have 1-month to rectify SAS errors

    Property owners who had made errors in the Self-Assessment Scheme have been given a month’s time (14th December, 2016 and 13th January, 2017) to rectify them. A provision has been made to correct the SAS errors, and make payment online or via a selected bank. The details related to changes in the use of property, zonal classification, and dimensions of the building should be furnished by the taxpayers. BBMP will take a survey of tech parks, shopping malls, industrial units to verify declarations made by the property owners. The rest of the properties will be verified through a GIS-enabled property tax information system. BBMP will file case against taxpayers, if discrepancies found during the official's’ door-to-door visits in February, 2017.

    BBMP aims to collect Rs.3,151 crores from property tax. As of now, Rs.110 crores has been collected through court cases, and Rs.100 crores after demonetisation. BBMP has collected Rs.150 crores from tax, Rs.23 crores from interest, and Rs.150 crores from penalty after the court favoured them with regard to outdoor advertisements. There were also technical glitches which led to some owners paying extra tax this year which will be adjusted during FY 2017-18.

    26 December 2016

  • Last Day to Pay Property Tax in Old Rs.500 and Rs.1000 Notes

    The Municipal Corporation of Amritsar had asked residents of the city to pay their taxes and other fee and charges using their old Rs.500 and Rs.1000 notes, which were recently banned by the Indian Government. People are allowed to make such payments until today. The department advertised the same in the city using advertisements online and offline. The Municipal Corporation did not receive a great response to this offer and they were able to collect just Rs.2 lakhs on Sunday. The residents have criticised this offer of the Municipal Corporation.

    14 November 2016

  • Citizens Seek Extension of deadline to Receive property Tax Rebate

    Residents of Amritsar are holding off on payments of property tax in the hopes of hearing news about extension of the tax rebate. The civic body had ended the rebate for property tax in Amritsar on September 30th but citizens feel that this should be extended. They feel that if they are paying their taxes 5 months in advance, they should be offered some form of rebate. The cash strapped civic body closed down rebates on September 30th after it failed to hit its recovery targets. The target for collection this year was Rs 50 Crore.

    7 October 2016

  • Nagpur Municipal Corporation fall woefully short of recovery target

    The Nagpur Municipal Corporation had set a recovery target of Rs 306 to be collected as property tax by the end of this fiscal year. However, with half the fiscal year already behind us, the NMC has barely been able to hit 12% of their estimated target and have managed to collect a paltry Rs 37 Crore through property tax in Nagpur. Shravan Hardikar, the municipal commissioner has asked that assistant commissioners of all 10 zones ramp up collection and even seize property of defaulters and put them up for auction if they have to. NMC has a potential to earn Rs 500 Crore through property tax but have yet to scratch the surface.

    3 October 2016

  • NMC fall short in Tax Recovery

    The Nagpur Municipal Corporation had set a target for property tax recovery and has fallen woefully short. The set target was Rs 307 Crore and while almost half the fiscal year has passed, the NMC have managed to recover close to 12% of the target and has made a recovery of only Rs 37 Crore.

    Shravan Hardikar, the municipal commissioner of NMC has directed the assistant commissioners of all 10 zones to seize property of tax defaulters and even auction them if they have to recover the dues. According to some sources, the NMC does have the potential to earn Rs 500 Crore through tax but has hardly managed to scratch that surface.

    3 October 2016

  • Property taxation System Gets a Tiny But Vital Upgrade

    To allow the systematizing as well as streamlining records for property as well as the property tax branch along with the ongoing nexus over it, the municipal corporation (MC) have issued notices to tax defaulters starting last Friday. A MC commissioner, Lalit Siwach notified that the major defaulters consist of a list of 18 commercial property owners among other. These people have been issued notices. It is expected to recover Rs. 10 crore from major defaulters, while Rs. 15 crore tax is said to be recovered from both residential as well as other commercial property defaulters.

    27 September, 2016

  • NDMC takes possession of properties of tax defaulters

    The North Delhi Municipal Corporation attached around 450 properties that failed to pay MCD property tax in the last fiscal. Dedicated teams have also been formed to recover all outstanding dues, such as transfer duty and stamp duty.

    Praveen Gupta, NDMC Commissioner stated that more than 125 commercial establishments have failed to pay transfer duty, which has resulted in financial losses to the municipal corporation. Transfer duty is a surcharge on stamp duty at a rate not exceeding 5% of the total amount specified in the DMC Act. It must be paid in the sale or transfer of an immovable property.

    Gupta said that individuals and builders are required to pay the tax owed to the corporation, as this contributes to the development of the municipality and the provision of civic amenities.

    16 September, 2016

  • Property tax on BDA vacant sites slashed by half

    The vacant sites for construction are subjected to a tax reduction of 50% by the Bangalore Development Authority last Wednesday. This happened after the public uproar of the property tax hike which was raised in April especially on the properties built on sites. But the raise in prices of buildings will not be discontinued.

    As per statements made by the organization’s officials, this rise in tax was affected by fixing the BDA property tax as 1/1000th of Guidance Value (fixed by the Stamps and Registration Department) if the property is 50x80 sqft & 40x60 sqft. Also the tax payable was 1/2000th of the Guidance Value in the case of a 20x30 sqft and 30x40 sqft sites. The originally raising of property tax was done with the intention of leveling BDA with the property tax levied by the BBMP, as based on the official statement.

    7 September 2016

  • Vadodara Municipal Corporation to collect property tax at doorstep

    The Vadodara Municipal Corporation (VMC) has initiated a one of its kind service where representatives will collect property taxes at the doorsteps of citizens. Property owners can call the toll free number (18002330265) to avail this service.

    The standing committee of the civic body cleared this proposal which lets taxpayers access a convenient channel to remit property taxes. To aid this purpose, VMC has tied up with four private sector banks who will arrange for collection of taxes at doorstep. Apart from the doorstep collection, citizens can also pay taxes at ward offices, at branches of HDFC, Axis and ICICI bank branches or online, on VMC’s website. A nominal charge of Rs.50 is payable for the doorstep mode of property tax collection.

    4 August 2016

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