Navigating India’s long list of different taxes can be perplexing, especially when distinguishing between property tax and wealth tax. Although the terms might seem interchangeable, they address distinct facets of financial portfolios. Both taxes apply to immovable and movable assets, contributing to the government revenue. This article aims to highlight the difference between property tax and wealth tax, shedding light on their unique roles within the Indian taxation framework.
What is a property tax?
Property tax, commonly known as house tax, is imposed on real estate proprietors by municipal bodies, such as municipalities, municipal corporations, or panchayats. The revenue generated from this tax is allocated for the maintenance of local community amenities like parks, drainage systems, roads, and other facilities. Applicable to both residential and commercial properties, including land attachments and alterations, property tax excludes vacant land lacking any associated real estate structure.
What is a wealth tax?
The wealth tax, governed by the Wealth Tax Act of 1957, is a direct tax levied on an individual’s personal assets. Originally designed to promote equity among taxpayers of varying affluence, India ceased imposing wealth tax with the enactment of the Union Budget in 2015, effective from the financial year 2015-16. Instead, it now manifests as a surcharge on individuals with higher incomes. The surcharge was elevated to 10% on income tax for those earning more than Rs 50 Lakh annually, and 15% for total income exceeding Rs 1 Crore, as per the Union Budget of 2019.
How is property tax calculated in India?
The calculation of property tax is contingent upon the municipal bodies, with the assessment based on the property’s evaluated worth. Three predominant methods govern property tax calculations: the Capital Value System (CVS), the Unit Area Value System (UAS) and the Rateable Value System (RVS) or Annual Rental Value System. While CVS is commonly employed in Mumbai, RVS is utilized in locations like Hyderabad and Chennai, and UAS is the preferred method in cities, such as Delhi, Kolkata, Patna, Bangalore, among others.
How is wealth tax calculated in India?
The wealth tax is assessed on the total net wealth of an individual, company or Hindu Undivided Family (HUF), when it exceeds Rs 30 Lakh on the valuation date. The applicable tax rate is 1%, levied on the value exceeding Rs 30 Lakh. Individuals whose net wealth exceeds this threshold are obligated to file a return of net wealth, with the due date aligned with that of the income tax return.
Why was wealth tax abolished in India?
The abolition of wealth tax in India during the 2015-16 Union Budget was driven by multiple factors:
- Administrative challenges: The wealth tax system posed complexity and demanded extensive administrative resources. Precise valuation of diverse assets resulted in administrative challenges and frequent disputes.
- Encouragement of investments: The elimination of wealth tax aimed to stimulate investments and alleviate the burden on taxpayers. Policymakers believed that removing this tax would foster economic growth and facilitate wealth creation.
- Low revenue yield: The revenue generated from wealth tax was comparatively meager in proportion to the administrative efforts required. The implementation and enforcement costs exceeded the tax’s financial benefits.
Wealth tax vs property tax: Key differences
| Criteria | Property tax | Wealth tax |
| Nature of tax | Tax on the ownership of real estate (land, buildings) | Tax on an individual’s total net wealth (assets – liabilities) |
| Assets taxed | Real estate assets | All taxable assets, including real estate, jewelry, cars, among others. |
| Calculation basis | Assessed value of the property | Net value of all taxable assets |
| Abolition | Still in existence | Abolished in India from FY2015-16 |
| Revenue focus | Local government revenue for public services | Central government revenue for reducing economic inequality |
FAQs
What is the distinction between property and wealth?
Property encompasses owned assets, comprising tangible and intangible possessions. Wealth, on the other hand, represents the total value of an individual's or entity's assets, encompassing both property and other financial resources.
Who is liable to pay wealth tax in India?
In India, the wealth tax is a government-imposed levy applicable to individuals and Hindu Undivided Families with taxable assets exceeding specified thresholds.
What is the significance of paying property tax?
Paying property tax is essential for financing local government services and contributing to infrastructure development. It plays a crucial role in sustaining and enhancing community facilities and amenities.
Is wealth tax still applicable in India?
No, wealth tax was abolished in the 2015-16 Union Budget. The removal aimed to simplify administration, as the tax posed significant administrative challenges and yielded relatively low revenue compared to the efforts involved.
How is property tax calculated in India?
Property tax in India is calculated by municipal bodies based on the assessed value of the property. Various methods, such as the Capital Value System (CVS), Annual Rental Value System (RVS), and Unit Area Value System (UAS), are used for calculation, depending on the location. The tax contributes to funding local government services and amenities.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
