Property Tax in India

• Property Tax is the most reliable and stable revenue source for the Government than any other tax - This is because the value of property is usually less susceptible to short term economic  fluctuations than other major revenue sources.
• Property Tax is difficult to evade since these are secured by the property - This ensures that a major segment of the population pays their due property tax.
• Property Tax systems are more open and visible than those for other taxes - The property owners have the right to examine the assessments and they are usually provided with a bill that shows their entire liability, which makes the full magnitude of the tax obvious. But this is not the case with the small amount of taxes collected as part of the purchase price in the form of sales tax or they are withheld from pay throughout the year along with many other items in the form of income tax.

• The large lump-sums payments often associated with property tax are seen as a major disadvantage - Property taxes fall in the purview of unrealized capital gains which are not related to cash flow. This makes is difficult for the companies to make payments that are property rich, but cash poor.
• There is often a misunderstanding of the relationship between appraised value and tax - This is a disadvantage when compared to sales tax or income tax which is usually a fixed-rate tax. The problem gets bigger when tax jurisdictions permit long or irregular periods between reappraisals as the applicable tax might increase significantly all of a sudden.
• Property tax appraisals may be perceived as inequitable, especially since assessment ratios differ between property classes - In most of the cases, appraisals may be truly inequitable. Lack of adequate state or local oversight demonstrates poor uniformity among comparable properties is a prime indicator of inequitable treatment.

BRIEF HISTORY

In India, the system of direct taxation has been in force in various forms since ancient times. There are references about the property tax in Arthasastra and Manu Smriti. In the ancient times, the kings would charge some amount of taxes on the local farmers, and the amount of tax that was collected from them was used as the treasury of the kingdom. The British government invented a new method of collection of tax. They appointed persons who would collect the tax from the people in place of them as a result of which the system of formal tax collection was brought into the real world.

TYPES OF PROPERTY

The Government of India collects Property tax based on some terms and conditions. In India, property is divided into four different types.

The different property divisions in India are given bellow as follows:

• LAND- Land is the most common type of property among the different types of property. Land, in this context, includes only the land without any kind of construction or modification.
• IMPROVEMENTS MADE TO THE LAND: The second type of property is the IMPROVEMENTS MADE TO THE LAND. Under this, all the modifications or changes that are being made by the man are included in this. For example- creation of buildings, etc.
• PERSONAL PROPERTY:  Under the personal property, cars or trucks which are the man made creations but movable are included in the personal property.

• INTANGIBLE PROPERTY: This includes the objects which are not in real existence, i.e. it cannot be seen nor touched. This includes patents and royalties

In the past, paying property tax was considered as an inconvenience but now with the advent of internet, it has become much simpler and easier to pay property tax. The Municipal Corporations give the individuals the benefit of paying of property tax online streamlining the process and also save the time of the person. In order to pay the property tax online, the following are the steps that need to be taken:

1. The individual needs to log on to the official website of paying property tax of the Municipal Corporation.
2. Then the individual is required to select the tab depicting the property tax and then navigating to the payment option.
3. The next step which the individual is required to do is to select the right form based on the category under which their property falls.
4. Then the person is required to select the assessment year i.e. the year for which the property tax needs to be calculated and paid.
5. The next step which comes in the payment of property tax is to fill in their property identification number and all other relevant information and documents pertaining to their property.
6. After all the information is correctly entered, individuals have to choose the method of payment. They can opt for credit/debit cards or can even opt for internet banking for making of payments.
7. After the payment is successfully done the individual can then take a print out of the challan for reference in the future.

In India, property tax depends on the location of the property, and the amount of property tax varies from state to state. There is no fixed method of calculation of property tax and different corporation uses different methods to calculate tax.

The general outlay of property tax remains the same which is:

First of all, an inspection of the property is carried out by determining the place where the property is located. The second thing which comes into view while calculating property tax is the occupancy status, which means whether the property is self-employed or rented out. The other consideration which also comes into action while calculating the amount of property tax include -

• The type of property, whether residential or commercial.
• The amenities provided such as place for parking of cars, the feature of rainwater harvesting, etc.
• Type of constructions, whether multi-storied, single floor or pukka or kutcha house.

After all these things are determined by the Municipal Corporation, they then use the formula for calculating the amount of property tax to be paid by the individual.
The formula is - Property tax= base value of the property x floor factor x type of building x age factor x built up area x category of use.

When the individual fails to pay the amount of property tax on time then he is charged a fine for the late payments of property tax. The fine generally is equal to a certain percentage of the amount of taxes due. In this case also the amount of late fine varies from state to state. But the optimum amount of percentage charged for late fine ranges from 5% to 20%. There also exists a case when a state or Municipal Corporation can even disregarded the concept of charging of late fine on the amount of property tax due.

Section 80C of the Income Tax Act which was passed in the year 1961 becomes relevant when property tax is concerned. Individuals who are buying a new house for themselves can claim a tax deduction under Section 80C of the Income Tax Act. Such deductions are available for the registration charges payable on the house and the stamp duty payable. These costs alone constitute about 10% of the cost of the property and so the deduction available under Section 80C is sufficient for individuals for saving tax. One thing to note with regard to this section i.e. Section 80C is that the total amount of deduction available is limited to Rs.1.5 lakhs. Moreover, any additional expenses which are incurred on the transfer of property can also be claimed as deduction under this Section. However, any deductions available are applicable only in case of purchase of a new property.

When a property is sold, the profit earned from such sale is entitled to be taxed a capital gains tax. However, if a new house is bought using the proceeds of selling a property within two years of the sale or if the proceeds are used for construction of a new house, such expenses incurred on construction or purchase of a house property would be excluded from the capital gains tax liability.

Q. What is property tax?

Ans. Property tax is a direct tax levied on tangible real estate properties including buildings used for commercial, industrial or residential purposes and also on vacant lands. It is levied and collected by the municipal authority of the city. So for example, if you own a property in Mumbai, then you are liable to pay the property tax to Brihanmumbai Municipal Corporation(BMC). Property tax is paid by the owner of the property on annual basis.

Q. Who is a ‘deemed owner’ for the purpose of the payment of property tax?

Ans. It means the owner by implication. Deemed owner may not be the same person under whose name the property is registered. The deemed owner is the person liable to pay the property tax, not the legal owner.

For tax purpose, a person in the following cases would be considered as a deemed owner.

Property Gifted or Transferred for Inadequate Consideration

If you have transferred your property in the name of your spouse or minor child for inadequate considerations then you will be treated as a deemed owner of the property. In case of the spouse, such transfers should not be under any agreement of separation.

Holder of Impartible Estate

The holder of the impartible estate will be considered as the deemed owner of the property even though the property may be legally owned by someone else.

Example: Suppose a Hindu Undivided Family (HUF) holds property on behalf of all the members of the HUF but the property is legally registered in the name of an individual of the HUF. In such a case, the HUF will be considered as the deemed owner of the property.

Cooperative Society Member

A member of some cooperative society or AOP (Association of Persons) to whom a property has been allotted or leased under a housing property scheme would be treated as the deemed owner of the property.

Long Term Lease

In case a person has taken the lease of the property for more than 12 years then he would be considered as the deemed owner of the property.

Section 53A of Transfer of Property Act

Section 53A of Transfer of Property Act, 1882 deals with the scenario where the buyer has made the required payments and has taken the possession of the property under a contract for transfer of immovable property but the transfer deed has not been registered.

In such a case a person who is permitted to retain the possession of the property would be considered as the deemed owner of the property.

Q. My house does not generate any income. Do I still need to pay house property tax on that property?

Ans. Yes, you need to pay house property tax for that property. The property tax imposition is not dependent on whether the house is self-occupied or rented. However, since your house is not generating any kind of rented income then you will not be liable to pay income tax on that, unless you own more than one house.

Q. Who will pay the property tax when the title of the property is disputed in the court of law?

Ans. In a case, when two parties are in a dispute over the property rights in the court of law, then the assessing officer has the power to assign one party to pay the property tax for the time being. If the court ruling comes against the assigned party later, it can claim for a property tax refund from the other party.

Q. How is property tax calculated?

Ans. Property tax is basically calculated on the basis of the annual value of the property and the applicable tax rate. The general formula for the calculations of the property tax is

Property Tax = Tax Rate * Annual Value of the Property

However, the property tax is localized in nature as it is levied by the respective municipal authority of the city. Each municipal corporation uses its own computation method for calculation annual value of the property and also levies different tax rates. Therefore, it varies from location to location.

Here, you can find the property tax calculation method for major metro cities :

MCD Property Tax in Delhi
BMC Property Tax in Mumbai
BBMP Property Tax in Bengaluru
Property Tax in Kolkata
Property Tax in Chennai

Q. Which properties are exempted from property tax?

Ans. The properties which are exempted from the imposition of property tax are :

All buildings and lands used for religious worship by the public, public burial & cremation grounds, or heritage lands.
All buildings and lands used for charitable and educational purposes.
Agricultural land

Q. What happens to property tax when a property is held in joint ownership?

Ans. In the case of joint ownership of the property, the property tax payment is done by each co-owner in proportion to their respective shareholdings as mentioned in the legal documents.

Q. Is the property tax applicable to vacant lands?

Ans. Yes, property tax is levied on vacant land if they are not exclusively used for agricultural purposes.