What is Property Tax?

Property tax is a mandatory annual tax paid by a land-owner to the government-mandated local body or the Municipal Corporation. It is based on the total value of the property. The rate of this tax as well as the manner of valuation usually varies between municipal authorities across the country.

These taxes are collected on all tangible real estate properties, including –

  • Residential and commercial buildings.
  • Attached lands.
  • Rented houses.

However, this municipal tax is not levied on vacant plots that have no adjoining buildings.

Property or house tax is mandatory for owners to pay by and before the mentioned due date.

How to Calculate Property Tax?

The taxable amount is calculated by municipal authorities based on the assessed value of a particular property. There are primarily 3 methods that are used to calculate these taxes.

  1. Unit Area Value System Unit Area Value System, or UAS, is calculated based on per-unit price of the built-up area of a particular property. The tax slab for per square foot of build-up area is fixed depending on the expected market price of that property (calculated depending on the location, usage, and land price.)
    There are several municipalities that utilise this method. Municipalities in Kolkata,Patna, Bengaluru, as well as EDMC property tax and NDMC property tax follow this mode of calculation.
  2. Rateable Value System Rateable Value System or RVS calculates property tax based on the annual rental value of a particular property. The amount is decided by the municipal authority based on the size, location, condition of the property, amenities, etc. This system is followed by municipalities in Hyderabad and Chennai.
  3. Capital Value System
    Capital Value System is calculated based on the total market value of a property. This rate is revised and published every year, prevalent in multiple Tier-I cities such as Mumbai.

How to Pay Property Tax Online?

Several municipalities have introduced online portals to help taxpayers pay property tax online. It aids in timely tax payments, helping a property owner maintain seamless and easy- access to records that are used while calculating details like income tax on sale of land and tax on rental income. Timely tax payment also helps in case of applications for secured loans. Borrowers can enjoy loan against property tax benefits of up to Rs. 2 lakh if the funds are utilised in accordance with the end usage criteria suggested in Section 24(B).

What are the Types of Property?

The types of property on which an owner has to pay this tax include –

  • House,
  • Flat,
  • Commercial building, etc.

It should be noted here that property tax is not applicable on an empty plot. Only a constructed building will attract the same.

Interest Rate on Property Tax

Interest on property tax is charged when you fail to pay it in due time. Usually, the rate varies between 5% and 20%. Some states also don’t charge any additional late payment fee.

For example –

  • North Delhi Municipal Corporation (NDMC) reduced the property tax in Narela Zone to 1/4th of the prevailing rate in January 2020.
  • Bruhat Bengaluru Mahanagara Palike (BBMP) imposed a 2% land transport cess on the current property tax rate.
  • Bruhat Bengaluru Mahanagara Palike (BBMP) also proposed to double the property tax for those violating construction rules and regulations.
  • Pune Municipal Corporation (PMC) proposed to hike the property tax by 12% In January 2020.

How to Calculate Income from House Property?

The net asset value (NAV) of a house can be calculated by deducting property tax from gross asset value (GAV).

GAV is any of the following -

  • Rent received or receivable.
  • Current market price.
  • Estimated value as per the local body.

Loss from House Property

Property owners will undergo a loss in case their house is –

  • Self-occupied.
  • Of other types.

In such cases, owners will be able to set-off their loss against any of the following 5 sources of incomes –

  1. Salary
  2. Income from business or profession
  3. Income from other house property
  4. Capital gains
  5. Other sources

Loss from house property can be deducted against these incomes during the same fiscal year. Such losses will be carried forward to next fiscal if not deducted during this period. The net income thus availed will be taxable under the respective tax slabs.

As Finance Act, 2017, a maximum of Rs.2 lakh can be set-off during a fiscal year. The balance can be carried forward to the next year.

Income Tax Deductions on House Property

Income tax deductions on house property are subject to the following conditions -

  • Rent received.
  • NAV of the house(s) you are renting out, except the one you are living in.

No tax deductions will be applicable if the house you own is self-occupied. In such cases, tax exemptions will be subject to Section 24.

Types of Income Tax Exemptions Provided by Section 24

Section 24 of the Income Tax Act titled “Deductions from income from house property” allows these exemptions –

  1. A standard deduction of 30% on the NAV.
  2. A deduction of up to Rs.2 lakh on the interest paid on borrowed capital (home loan) for construction of acquisition of the house. The construction or acquisition has to be completed within 5 years.

This deduction will be subjected to Rs.30,000 if the purchase or acquisition is not completed with the said period.

Exceptions Under Section 24

Exceptions under Section 24 is subject to the following cases as per Section 23, sub-section (2), where the house is –

     a. Self-occupied.
There will be no ceiling for deductions if the property is not self-occupied.

     b. Cannot be occupied by the owner owing to his/her business, occupation, or employment, which is carried out at any other place.
The deductions will be limited to Rs.2 lakh if the house is not self-occupied for these reasons.

Income Tax Exemptions Offered by Section 80C

Section 80C offers deductions for stamp duty, registration charges, and principal repayment of borrowed capital. Such exemptions have a ceiling of Rs.1.5 lakh.

Deductions on the borrower capital principal can be claimed every year as long as it is foreclosed or fully repaid. Stamp duty and registration charges deductions will be only applicable once in the same financial year when the same are paid.

About BBMP Property Tax

Bruhat Bengaluru Mahanagara Palike or BBMP property tax is calculated based on a Unit Area Value system. The system calculates the tax basis the expected returns from a house property.

The calculation process is depended on per sq. ft. per month for a specific location multiplied by the rate.

BBMP classifies its serviceable areas into 6 zones – A to F. The property tax rate depends on these respective zones.

The tax rates for a tenanted property at zone A is Rs. 5 per sq. ft., while for a self-occupied one, it is Rs. 2.5 per sq. ft. On the other hand, a tenanted property in zone F is Rs. 2 per sq. ft., while for a self-occupied one, it is Rs. 1 per sq. ft.

About NDMC Property Tax

The New Delhi Municipal Council (NDMC) charges property tax basis on the following slabs –

  • 20% - For relatable value of property up to Rs. 10 lakh.
  • 25% - For relatable value of property between Rs. 10 lakh and Rs. 20 lakh.
  • 30% - For relatable value of property above Rs. 20 lakh.

The NDMC collects property tax from 13,500 private and government properties. It also collects service charges from government establishments constructed after 26th January 1950.

Property tax of NDMC is the rate determined under Section 61 of the NDMC Act multiplied by the relatable value of the building and land determined under Section 63 of the Act and NDMC Bye-Laws.

About EDMC Property Tax

The East Delhi Municipal Corporation (EDMC) also calculates property tax based on the Unit Area Value system. It has 7 colony categories for its 20 types of properties. Property tax rate for EDMC ranges from 10% to 20%.

The following individuals receive a 30% rebate on property taxes –

  • Physically-challenged.
  • Women-owned properties.
  • Senior citizens.
  • Ex-Servicemen.

A 20% rebate is offered to group housing flats if the tax is paid within 30th June of every financial year.

The rebate is subject to several conditions, one being that it is applicable for only 200 sq. m of total area or built-up area except for CGHS or DDA housing residential units.

All of the respective municipal corporations have their dedicated websites through which owners can pay their property tax. Some of the state governments also have a dedicated portal to pay property tax of respective municipal councils.

Apply For Property Tax in other cities

Cities Links
Property Tax in Delhi MCD
North Delhi Property Tax NDMC
South Delhi Property Tax SDMC
Property Tax in Faridabad MCF
Property Tax in Ahmedabad AMC
Property Tax in Bangalore BBMP