What is the property tax?

Over the past decade, average property prices in India witnessed a brisk growth rate of 38%, according to a recent financial report. It then follows that scores of individuals across India consider real estate to be a safe haven for investment instead of other options like mutual funds, stocks, and gold. Read here all details about property tax.

In India, every owner of a property is required to pay a government-mandated fee to the local municipal corporation. The concerned property has to be under the jurisdiction of the said municipal corporation.

Property tax is levied on real estate consisting of buildings or even land attached to buildings. Vacant plots of land are generally not taxed as they are anyway considered as income from other sources.

Nonetheless, regardless of the property invested in, all owners across India are required to pay a specific sum as property or house tax to the respective municipal authority. The precise rate levied varies from one municipal corporation to another across different states. It is an elementary stream of revenue for the local bodies or authorities.

  • According to an official data by the Bruhat Bangalore Mahanagara Palike (BBMP), it has collected Rs.1,804 crore from 1st April to 1st August 2020.
  • Up until 31st January 2020, Brihanmumbai Municipal Corporation (BMC) realised Rs.2,878 crore as house tax in FY20.

It is a legal obligation that every property owner must comply with. In case you do not pay property tax online or offline, the respective municipal authority can levy fines, which can be exorbitant depending on the degree of violation. Thus, it’s essential to know in detail about this component if you own any real estate in India.

What does property tax entail?

Individuals owning any real estate property in India, be it commercial, residential, or let out, need to pay a specific sum every year on the assessed value of such possession, called property tax. However, this tax is not applicable to vacant plots with no building.

The respective local government collects this amount to finance upkeep and infrastructural development within its jurisdiction.

Property owners are liable to pay this tax annually, against which a receipt is provided. This piece of document proves essential when planning to sell a property. Moreover, it is also among the list of documents required to apply for a loan against property.

The calculation of tax involves a specific formula, which typically differs across municipal corporations. The calculation method so employed is discerned by the governing body.

How is property tax calculated?

Primarily, municipal authorities employ any of the following three ways to calculate house tax in India.

1. Annual Rental Value System

It is also known as a Rateable Value System. Under this approach, a property’s value is determined by its rental worth, and tax calculation takes place based on that. Hyderabad and Chennai are two examples of municipal corporations following this calculation system.

  • 16 lakh – The Number of properties within the jurisdiction of Greater Hyderabad Municipal Corporation.

However, such value is not based on the actual rent collected. Instead, rental value assessment is done with respect to these factors – property size, its condition, amenities, location, its proximity to landmarks, etc.

2. Capital Value System (CVS)

Under CVS, the tax calculation is based on the market value of a property. In case you own real estate in Mumbai, the tax on it is computed as per this approach.

  • Brihanmumbai Municipal Corporation (BMC) is the wealthiest local body in India, with property tax forming nearly 22% of its total revenue.

Nonetheless, municipal bodies adopting this system determine such market value primarily with regards to the locality to which a property belongs. The tax is calculated as a percentage of that value.

3. Unit Area Value System (UAS)

As per UAS, house tax is calculated based on the per-unit price of a property’s built-up area. This per-unit price is determined as per the following factors – the price of land, location, and usage. Following that, it is multiplied by the built-up area. Several cities follow this system to calculate property tax, including Kolkata, Delhi, Bangalore, and Patna.

How to pay property tax in India?

property tax

The precise property tax payment method differs from one municipality to another. You may need to visit the local municipal office for that. In some cases, a municipality also ties up with different financial institutions to facilitate property tax collection.

Most metropolitan municipal corporations, like that of Mumbai, Delhi, Kolkata, and Bangalore, offer the facility of online payment for property tax bills via their dedicated websites. Thus, it becomes significantly convenient for property owners.

You will be provided with a receipt upon payment completion. Financial institutions consider such receipt as a means to establish ownership when assessing an application for a loan against property.

Also, a loan against property involves no end-use restriction. Henceforth, you can use this credit facility to mitigate an array of financial obligations. It can be used to finance a wedding, child’s education, and even to consolidate existing high-interest debts. Debt consolidation allows you to manage finances better and helps regulate your monthly monetary outgo.

Nevertheless, before you apply for this loan facility, it’s essential to be thorough regarding factors like the loan amount you require, repayment period, etc. Moreover, you should know about the 3 types of loans against property before applying to select the best option.

Furthermore, look for a lender who provides pre-approved offers on loans to ensure a faster and hassle-free application process. Such offers are available across a range of secured credit facilities like loans against property, home loans, etc. You can provide your name and mobile number to check your pre-approved offer.

Nonetheless, when paying your house tax, you may need to do so with your Khatha or property tax number. Some municipal corporations also offer rebates based on a host of factors. Ensure to verify the process of property tax calculation with the local administration to know your tax liability accurately.

Your property tax bill along with the payment receipt assures credibility when you are mortgaging your property while availing a loan from financial institutions.

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