How is Property Tax calculated?

September 21, 2021

How Property Taxes are calculated

What is Property Tax?

A Property Tax is the amount paid by the landowner to the municipal corporation or the local government for his/her area. The tax must be paid every year. 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. It also known as House Tax.

Importance of paying the Property Tax:

Property Tax is calculated, according to the recent property valuation conducted by the municipal body. Only the owner of the property is liable to pay the Property Tax. Hence, if you are a tenant, you need not be concerned about it.

In case of a property dispute, the Property Tax receipt plays a crucial role to prove ownership of the property. Consequently, when you buy a property, the title of the property should be updated in the municipal records. However, until all the outstanding arrears are cleared, the name cannot be transferred to the new buyers. If the record is not updated in the municipal records, then the name of the previous owner will continue to show in the tax receipt.

While getting the property registered in your name at the local municipal records, you may be asked to provide documents to prove the ownership of the property. The list of documents that you may need to include to get the property name updated, are the sale deed copy, clearance from the society, duly filled application, photo and address proof, copy of receipt of the last paid Property Tax, etc. A Property Tax receipt is also a key document for availing loans, such as a Loan Against Property.

Hence, you must make the Property Tax payments on time and keep your records updated at the local municipal bodies. Certain establishments, such as places of worship, government buildings, foreign embassies, etc., are usually exempted from Property Tax. Clean land is also exempted from Property Tax charges.

How does one calculate a Property Tax?

There are various other factors that determine the amount of Property Tax payable, such as:

  • Location of the property

  • Size of the property

  • Whether the property is under construction or ready-to-move.
    For a property that is under construction, the government has offered relief for property buyers. A tax of 18% is levied on under-construction flats, out of which you are subjected to pay only two-thirds, that is, only 12% tax

  • Gender of the property owner – there may be discounts for female owners

  • Age of the property owner – there may be discounts for senior citizens

  • Civic facilities provided by the municipal body in the locality.

Property Tax calculation:

In general, the municipal authorities use one of the following 3 methods for the purpose of calculation of Property Tax:

  • Capital Value System (CVS): Under the Capital Value System (CVS), the Property Tax is calculated as a percentage of the market value of the property. The market value of the property is decided by the government on the basis of the locality of the property. This valuation system is followed in the city of Mumbai

  • Unit Area Value System (UAS): The tax valuation as per the Unit Area Value System or UAS is calculated on the basis of the per unit price of the built-up area of the property. This price is decided on the basis of the expected returns of the property, as per its location, usage and land price. This value is further multiplied with the built-up area of the property to derive the tax valuation. A number of municipal authorities such as Patna, Bengaluru, Delhi, Hyderabad and Kolkata follow this method

  • Annual Rental Value System or Rateable Value System (RVS): As per the RVS or the Annual Rental Value System, the tax is calculated on the rental value, which is derived from the property in a year. This need not be the actual rent amount, which is collected from the property. However, it is the valuation of the rent, which is determined by the municipal authority and is derived on the basis of the location, size and condition of the property. The proximity of the property to landmarks and other relevant amenities is also taken into consideration at the time of valuation. Chennai and parts of Hyderabad follow this method of tax calculation.

Link for tax calculation formulae for different cities: https://housing.com/news/property-tax-calculated/#How_do_you_calculate_property_tax.

Exemptions on Property Tax:

Even though the rules are different from one state to another and one city to another, certain types of property owners enjoy rebate on their overall Property Tax liability.

Exemption is typically provided to:

  • Religious organisations or governments

  • Senior citizens

  • People with disabilities

  • Former army, navy or any other personnel employed by the defence services

  • Families of martyrs from the Indian Army, BSF, police service, CRPF and fire brigade

  • Educational institutes

  • Agricultural properties.

Penalty for the non-payment of Property Tax:

Authorities across the country impose penalties on the delay in Property Tax payments. Depending on the city where you reside, you will be liable to pay between 1% and 2% of the outstanding amount, as monthly penalty. The Brihanmumbai Municipal Corporation charges 1% penalty, per month on the outstanding Property Tax, while the penalty is 2% in Bengaluru. A long delay in payments may also force authorities to attach your property and sell it, to recover losses.

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