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.
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:
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.
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:
- Log onto the official website of their municipality/city corporation.
- Choose the tab indicating property tax and navigate to the payment option.
- 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.
- 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.
- 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.
- Once all relevant information has been entered, individuals can choose the mode of payment, which could be credit/debit cards or internet banking.
- 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.
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
- 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.
- 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.
- 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.
- 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.
- 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
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.
14th 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.
7th 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.
3rd 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.
3rd 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.
27th 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.
16th 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.
7th 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.
4th August 2016
Nagpur Corporation Stays Implementation Of New Property Tax System
Nagpur Municipal Corporation(NMC) has decided not to implement the proposed new property tax rates this fiscal and to retain the old property tax regime, with an eye on the upcoming municipal polls. The new tax system, introduced in April 2015, raises the tax amounts by 2 to 7 times.
However, this does not mean that the 5.34 lakh property owners who pay taxes would have to pay less money to NMC. Next year, the corporation is likely to ask them to pay arrears for 2 years.
The new system did not find many compliant taxpayers in 2015-16. NMC is believed to have stayed the implementation of the new system after it started preparing demand notes for 2016-17 for property owners. They realised that taxes of most people would go up considerably.
20th July 2016
HC says BBMP Advance Property Tax is senseless
The High Court has placed the responsibility on the BBMP to choose on complaints that its current method of computation and accruing of advance property tax is seat-of-the-pants. A PIL had also defied what it dubbed as punishing candid tax payers. An announcement of the municipal agency delivered in March 2016 was also tested, which caused the High Court to request the BBMP to reflect the representation by the disturbed citizens and make an appropriate decision. Advance tax for the fiscal 2016-2017 has to be disbursed before 30th April to get at least five percent reduction.
13th July 2016