How to calculate property tax in India?

Property tax is a recurring charge that you need to pay every year. Here is a quick guide to understand the calculation process of property tax.

Aug 21, 2019 11:08 IST India Infoline News Service

When you purchase a home, you are probably aware that you need to pay stamp-duty and registration. While these are one-time charges, property tax is a recurring charge that you need to pay every year. Property tax is a tax levied by the local municipal body. This is in lieu of important services and facilities such as water supply, maintenance of roads, drainage and other civic facilities. Property tax is important because it is one of the major revenue sources for municipalities. The non-payment of this tax therefore warrants legal action.

Benefits of paying property tax
In case of a property dispute, the property tax receipt you receive plays a crucial role, as it is a testament to your ownership. When you get your property registered at the local municipal body, you need to produce ownership documents. Once you produce documents such as sale deed copy, clearance from society, etc. can you get registered for payment of property tax. The tax receipt is also a key document when you wish to avail loan facilities like a loan against property. 

Calculation of property tax
There are three main ways in which property tax may be calculated:
  • Annual Rental Value System – Under this system, the yearly rental value of the property is used to calculate the property tax. The rental value of the property is assessed by the municipality based on factors such as location, size, amenities, condition of property, proximity to facilities such as schools, hospitals, etc. Municipalities that use this system to calculate property tax are Chennai and Hyderabad.
  • Unit Value System – Under this system, the per unit price of the built up area of the property is taken into consideration. The price is fixed on a per square foot per month basis on expected returns of the property, as per its location, price of land and usage. This is then multiplied by the built up area of your property. Municipalities in cities of Delhi, Bengaluru, Hyderabad, Kolkata and Patna use this system for property tax calculation.
  • Capital Value System – In this system, tax is levied as a percentage of the market value of the property. The market value is based on the locality and determined by the state Government. The market value is revised and published on a yearly basis. The city of Mumbai uses this system to calculate property tax.
How to pay property tax?
Now that you know all about the calculation of property tax, it is time to know how to pay this tax.

Thus far, it was necessary for a property owner to visit the municipal corporation office of the respective locality to pay one’s property tax. However, with the advancement in technology, most municipal bodies have introduced the facility of online payment. You can now pay your property tax at the corresponding municipal authority website. All you need to do is to keep your property tax number handy, while making the payment online.

Consequences of delayed payment of property tax
As we have established by now, property tax is very important and needs to be paid annually. Late payment can cost you dearly. This is because late payment can attract a fine of up to 2% per month. However, as a property owner, you need to be aware of the calculation of the property tax applicable on the property you own to know how you are being taxed. Besides, there may be some exemptions from payment of property tax. Certain municipal authorities offer exemptions on payment of property tax based on type of property, location, age and net income of the owner.

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