Property Tax

A property tax is a yearly or semi-annual fee imposed by local authorities on the owners of real estate within their jurisdiction. This tax is an ad-valorem tax, meaning the amount owed is based on a percentage of the property's assessed value.

Property tax in India serve as a primary revenue source for local governments. The funds generated are typically used to finance public services, including schools, police and fire departments, road maintenance, libraries, water and sewer systems, and other community services.

Typically, property tax applies to immovable assets like land and buildings. However, certain local areas may also levy property taxes on movable property, such as vehicles and industrial machinery.

How to calculate property tax?

• Unit area value system: Unit Area Value System, or UAS, is calculated based on the per-unit price of the built-up area of a particular property. The tax slab per square foot of built-up area is fixed depending on the expected market price of that property (calculated depending on the location, usage, and land price). Several municipalities utilise this method. Municipalities in Kolkata, Patna, Bengaluru, as well as EDMC property tax and NDMC property tax, follow this mode of calculation.
• 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.
• 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.

Property tax calculation:

Property Tax = Base value x Type of building x Age factor x Floor factor x Category of use x Built-up area

Different corporations employ various methods to calculate property tax, but the overall approach to these calculations is generally consistent.

Required documents for paying property tax in India

Here are the required documents for paying property tax in India:

1. Property tax bill:

The most essential document is the property tax bill, which details the amount due and other relevant property information, including the property ID.

2. Property ownership proof:

A document proving ownership, such as the title deed, sale deed, or any legal document confirming your ownership of the property, is required.

3. Property ID/ assessment number:

This unique identification number assigned to your property by the municipal authority is needed for accurate processing of your property tax.

4. Identity proof:

A government-issued identity proof, such as Aadhaar card, PAN card, voter ID, or passport, may be necessary to authenticate the property owner's identity.

5. Address proof:

A recent address proof, such as utility bills (electricity or water bill) or a rental agreement (for tenants), may be required in some cases.

6. No Objection Certificate (NOC):

If the property is under a joint ownership agreement, a NOC from co-owners may be needed, especially in cases where tax payment is being made by one individual.

7. Encumbrance certificate:

In certain cases, particularly for properties with a mortgage or loan, an encumbrance certificate may be needed to show the property is free of legal liabilities.

8. Bank details:

If paying online or through a bank, you may need to provide your bank account details for payment processing or refund purposes.

How to pay property tax online?

Many municipal corporations offer the convenience of online property tax payments, simplifying the process and saving time. Here are the steps to pay property tax online:

1. Visit the official website of your municipality or city corporation.
2. Locate and click on the property tax tab, then proceed to the payment section.
3. Select the online application form for property tax based on the category your property falls under.
4. Enter the required details, such as property location and type.
5. Choose the assessment year, and if applicable, clear any pending dues from the previous year.
6. Provide additional details like plot number, identification number, or Revenue Survey number.
7. Select your preferred payment method, such as credit/debit cards or internet banking, to complete the transaction.

Types of property tax

Here are the types of property tax:

1. Real Property Tax (RPT): This tax is imposed on land and buildings. It is usually calculated based on the value of the property.
2. Personal property tax: This tax applies to movable property like machinery, equipment, and vehicles owned by businesses or individuals.
3. Transfer tax: Imposed on the transfer of property ownership, such as during a sale or inheritance.
4. Estate tax: Charged on the value of a deceased person’s estate, which includes their property and assets.
5. Land value tax: Focuses on taxing the land itself, not the buildings or improvements on it.
6. Special assessments: These are taxes for specific improvements or services like roads, sewer systems, or street lighting in a particular area.

What is the purpose of property tax in India

Property tax in India serves several important purposes, and it is a significant source of revenue for local municipal bodies. The key purposes of property tax in India include:

1. Local government revenue:
   Property tax is a primary source of revenue for local municipal bodies or urban local bodies. The funds generated through property tax contribute to the development and maintenance of civic amenities and infrastructure in the local area.
   
   
2. Infrastructure development:
   The revenue generated from property tax is utilized for various infrastructure development projects within the local jurisdiction. This includes the construction and maintenance of roads, drainage systems, parks, and other public amenities.
   
   
3. Public services and utilities:
   Property tax funds are used to provide essential public services and utilities such as water supply, sanitation, street lighting, and waste management. These services contribute to the overall well-being and quality of life in the local community.
   
   
4. Urban planning and development:
   Property tax plays a crucial role in urban planning and development. The funds collected are often used to implement planned development projects, regulate land use, and enhance the overall urban environment.
   
   
5. Maintenance of common areas:
   Property tax revenue is utilized for the maintenance and upkeep of common areas, including public parks, playgrounds, and community facilities. This ensures that residents have access to well-maintained recreational spaces.
   
   
6. Municipal governance:
   Property tax is an essential component of the fiscal autonomy of local municipal bodies. It allows them to have financial independence and govern efficiently by catering to the specific needs and priorities of the local community.
   
   
7. Equitable distribution of burden:
   Property tax is based on the principle of wealth or property ownership. It ensures that individuals who own properties contribute to the local government funds based on the value and type of property they possess. This helps in achieving a more equitable distribution of the tax burden.
   
   
8. Encouragement of proper land use:
   Property tax rates may be structured to encourage proper land use and discourage the hoarding of vacant land. This can promote efficient use of urban spaces and discourage property owners from keeping valuable land unused.
   
   
9. Revenue for local services:
   Property tax revenues are directly allocated for local services, and the collection is often earmarked for specific purposes such as education, healthcare, and social welfare within the local jurisdiction.

1. Check property tax details:

Visit your municipality’s website to access property tax payment details or your tax bill. Ensure that all the information, including property ID and dues, is accurate.

2. Choose payment method:

Decide whether you want to pay online or offline. Online payments can be made through the municipality’s website or third-party payment portals, while offline payments require visiting authorized centres.

3. Make timely payments:

Ensure your payments are made before the due date to avoid penalties and gain eligibility for loan benefits.

4. Apply for loan against property tax:

Once your taxes are paid, you can apply for a loan against property tax benefit, potentially unlocking up to Rs. 2 lakh, provided the funds align with Section 24(B) guidelines.

5. Maintain payment records:

Keep records of your payments for future reference, particularly when applying for loans or tax-related documentation.

On what types of property tax is deducted

Property tax is collected on all tangible real estate properties, which include the following:

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

However, this municipal tax is not levied on vacant plots that have no adjoining buildings as it is only applicable to constructed buildings.

Interest on property tax

Late property tax payments may incur a fine, typically calculated as a percentage of the outstanding amount. The interest rate varies across states, with some waiving it entirely, while others impose rates ranging from 5% to 20%, depending on local policies.

For example, certain states have waived penalties on property tax, whereas Bangalore reduced the interest rate for late payments from 20% to 10% in an effort to encourage timely payments from residents.

Property Tax in Other Cities