Everything you need to know about Property Tax.
Property Tax
Property tax is the amount that is paid by the land owner to the municipal corporation or the local government for his/her area. The tax must be paid every year. Property, office buildings, and residential homes that are rented out to third parties are considered as real estate assets.
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.
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.
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.
A) Land – in its most basic form, without any construction or improvement.
B) Improvements made to land - this includes immovable manmade creations like buildings and godowns.
C) Personal property – This includes movable man-made objects like cranes, cars or buses.
D) 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.
Steps to Pay Property Tax Online
Step - 1:Log in to the official website of their municipality/city corporation.
Step - 2: Choose the tab indicating property tax and navigate to the payment option.
Step - 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.
Step - 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.
Step - 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.
Step - 6: Once all relevant information has been entered, individuals can choose the mode of payment, which could be credit/debit cards or internet banking.
Step - 7: Once payment is made individuals can take a printout 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.
Calculation of Property Tax
The formula used for calculating property tax is given below:
Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor.
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 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.
Different Methods of Calculating Property Tax
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 Ratable 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 under consideration at the time of valuation. Chennai and parts of Hyderabad follow this method of tax calculation.
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.
FAQ's on Property Tax
Is property tax decided by the central government?
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?
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?
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?
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?
This depends on your municipal authority. If they allow online payment of property tax, you can make use of that facility.
Source: internet.
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