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Property Tax

Know all about Property Tax & its calculations in India. Read about the governing authorities, deductions available, properties covered & properties exempted.

What is property tax? The surcharge on real estate projects including land levied by the Government is called the property tax. It is a local tax imposed on the possessor. Property tax is also called house tax.

Governing Authorities: Property tax is different in different states. It is further delegated to the municipalities by law. This delegation results in various property taxation ways between different municipalities within the states. The power is given to local bodies so that public services can be maintained properly. The liability to pay tax is with the owner of the property.

Rate of Property Tax: The rates vary from municipality to municipality. Rates also depend upon the use of the property, i.e., industrial, commercial or residential.

Resources covered: The kinds of properties on which property tax is charged are:

  • Factory building
  • Residential house
  • Office building
  • Flats
  • Shops
  • Godowns

Exemption: Vacant lands without any building are exempted from property tax. Also, properties of Central government are excluded from the ambit of property tax.

Property tax calculation: The Annual Rental Value (ARV) is taken as a base for property tax calculation. It can be different for self-occupied and let out properties.

The annual value for let out property is ascertained to be the highest of the following:

  1. Rent received
  2. Value by Municipality
  3. Fair rent determined by IT Department.

In the case of self-occupied property, if completely used for staying by the owner, then the value is zero. The value is taken as zero also when it is kept vacant, i.e., the owner is neither staying nor letting it out. If rented, then the annual value will be proportionately ascertained.

There are some other methods that are used for calculating, namely Capital Value System and Unit Area System.


The interest charged on the loan to buy, build and repair the let out property is allowed as deduction. Also, 30% of the net value is allowed as the deduction for repair & maintenance of the let out property.

Deduction is available for the owners of self-occupied properties in the form of loan interest for construction or purchase of assets, subject to the maximum of Rs. 1,50,000 (credit is taken on or after 1st April 1999) and Rs. 30,000 (credit is taken before 1st April 1999).