While buyers have to pay a one-time amount to become the owner of a property, they have to consistently pay smaller amounts in the form of property tax, to maintain their ownership over this asset. Hence, property tax is a direct tax imposed on property ownership. Property tax payments are a source of income for development and civic bodies in India. It is a compulsory levy that owners of immovable assets have to pay, on an annual basis. In this article, we discuss the details of property tax payment in India.
What is property tax in India?
Property tax is a mandatory payment for all landowners or real estate owners, including residential and commercial properties. It is payable annually or semi-annually to local government bodies like municipal corporations or panchayats. The tax amount is based on the property’s location, current value, and local laws.
How does property tax work?
Property tax is an annual sum paid to the government by the property/landowner. The amount of this tax is based on the value of a property. This tax may be paid to the municipal corporation or the state government, depending on the government policy.
know about: gurgaon property tax
How do you calculate property tax
The owner of a property is liable to pay the tax levied by the local body (for example, the municipality) and such a tax is called the property tax. This tax may vary from one location to another and there are various other factors that determine the amount of property tax payable, such as:
- Location of the property.
- Size of the property.
- Whether the property is under-construction or ready-to-move.
- Gender of the property owner – there may be discounts for female owners.
- Age of the property owner – there may be discounts for senior citizens.
- Civic facilities provided by the municipal body in the locality.
Check out: Plots for sale in Hyderabad
Why do we have to pay property tax?
The local municipal body provides certain important services, like cleanliness in the area, water supply, maintenance of local roads, drainage and other civic facilities. Property tax allows the municipal bodies to get revenue, for funding all the services that it provides. It is one of the major sources of revenue for municipal bodies. If you do not pay property tax, then, the municipal body can refuse to provide the water connection or other services and it may also initiate legal action, to recover the due amount.
See also: Laws related to registration of property transactions in India
Importance of paying property tax
Property tax is calculated, according to the recent property valuation conducted by the municipal body. Only the owner of the property is liable for paying the property tax. Hence, if you are a tenant, you need not be concerned about it.
In case of a property dispute, the property tax receipt plays a crucial role, to prove ownership of property. Consequently, when you buy a property, the title of the property should be updated in the municipal records. However, until all the outstanding arrears are cleared, the name cannot be transferred to the new buyers. If the record is not updated in the municipal records, then, the name of the previous owner will continue to show in the tax receipt.
While getting the property registered in your name at the local municipal records, you may be asked to provide documents to prove the ownership of the property. The list of documents that you may need to include, to get the property name updated, are the sale deed copy, clearance from the society, duly filled application, photo and address proof, copy of receipt of the last paid property tax, etc. A property tax receipt is also a key document, for availing of loans, such as a loan against property.
Hence, you must make the property tax payments on time and keep your records updated, at the local municipal bodies. Certain establishments, such as places of worship, government buildings, foreign embassies, etc., are usually exempted from the property tax. Clean land is also exempted from property tax charges.
You can pay the property tax offline by visiting the city municipal corporation office or online. With the coronavirus pandemic, most municipal corporations encourage people to pay their property tax online and incentivise them for the same.
know about: pmc property tax
What is the best way to pay property taxes online?
Property tax can be paid online as well as offline. While paying property tax online is not a common practice, it is sometimes useful, particularly when conducting real estate business and wanting to keep a complete record of your transactions. To pay property tax online, you will need to register with the municipality/city corporation where you want to submit your property tax payment.
After creating an account and logging in, you will be required to submit various details regarding your property, such as the zone under which it falls, property type, the owner’s name, etc.
You can then choose the mode of payment before submitting the challan for processing. One important thing is that you will have to provide the name on the account from where the payment should be made for it to be processed.
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How to pay your taxes online?
The simplest way to pay your tax online is through the IRP app on your bank’s website. If you have a direct debit to deduct, it will be done automatically by your bank, at least once a month. You can also use e-filing as an option in case you want to file yourself instead of hiring someone else to do it for you.
Note: The links are taken from the websites of the respective authorities, as on August 8, 2017.
See also: A guide to paying Coimbatore property tax payment
Factors that influence property tax calculation
Property location
Properties situated in prime urban areas or commercial hubs usually face higher taxes than those in rural or less developed regions. The location’s infrastructure, amenities, and demand impact the tax rate.
Property age
Older properties may benefit from depreciation, potentially lowering their tax liability. In contrast, newly constructed properties are often taxed at higher rates due to their current market value and modern features.
Property size and built-up area
Larger properties or those with extensive built-up areas incur higher taxes. The tax calculation includes both the land area and the total built-up area, including any additional structures like gardens or backyards.
Property usage (Residential, commercial, etc.)
The tax rate varies significantly based on property usage. Commercial properties, which generate higher income, are taxed more heavily compared to residential properties. Agricultural properties often enjoy lower rates or exemptions depending on state policies.
Property valuation methods
Municipalities use different methods to assess property value, such as the Capital Value System (CVS), Unit Area Value System (UAS), and Annual Rental Value System (ARVS). Each method influences the tax amount based on factors like market value, rental income, or unit area.
Tax slabs and rates
Property taxes are structured in slabs with varying rates based on the property’s value or usage type. Higher-value properties typically fall into higher tax slabs, resulting in increased tax liability. Tax rates and slabs vary by local municipal authorities.
Holding tax vs property tax vs house tax
In India, holding tax, property tax, and house tax are terms often used interchangeably, but they refer to the same concept. All three terms describe the tax levied by municipal authorities on property owners based on the property’s value and usage.
- Holding Tax: Traditionally used in some regions, it refers to the tax imposed on the holder or owner of a property.
- Property Tax: This is the most commonly used term, referring to the annual tax paid by property owners based on the property’s assessed value and the services provided by the local government.
- House Tax: Often used in specific contexts or regions, it denotes the tax on residential properties, similar to property tax.
While the terminology might vary, they all refer to the tax collected for municipal services and infrastructure maintenance related to property ownership.
How to get a property tax application number?
Here are the steps to obtain your tax application number:
- Visit the official website of your respective Municipal Corporation.
- Navigate to the property tax section.
- Select the ‘GIS-based New PID’ option.
- Click on ‘To Know Your New PID’ and enter your old application number.
- Hit ‘Search.’
- Choose your name from the results and click ‘Fetch.’
- Review the displayed details for accuracy.
For more information, click ‘View your property in Map,’ locate it on Google Maps, and download or save the details for future reference.
How to download property tax receipt or challan online?
- Step 1: Go to the official municipal website.
- Step 2: Log in using an OTP.
- Step 3: View property tax payment details.
- Step 4: Click on ‘Action’ and select ‘tax paid details.’
- Step 5: Download the receipt for future reference.
How to save on property tax?
- Review your property tax card
Check the property tax card issued by your local municipal authority for details such as total built-up area, carpet area, and room dimensions. Ensure these details accurately reflect your actual property. Any discrepancies can lead to higher tax assessments.
- Avoid unnecessary alterations
If you own an independent home, avoid making unnecessary structural changes or additions. Additional construction can increase your property’s assessed value, increasing property taxes. Only make changes if necessary to keep your tax liability low.
- Utilize home loan deductions
Under Section 80C of the Income Tax Act, you can claim up to ₹1.5 lakh per annum for the repayment of your home loan principal. This helps reduce your taxable income and lowers the overall cost of home ownership.
Section 24(b) allows you to claim up to ₹2 lakh per annum on the interest paid for your home loan. If the loan is jointly held, all applicants can claim this deduction, provided the combined claim does not exceed the total interest paid in the financial year.
- Explore additional concessions
Investigate potential property tax exemptions for specific groups such as farmers, senior citizens, or armed forces members. Additionally, if you’ve recently purchased a property, you can claim a one-time deduction for stamp duty and registration costs under Section 80C.
Interest on Property Tax
Late property tax payment can result in a penalty, typically a percentage of the outstanding amount. The interest rate varies by state, ranging from 5% to 20%. Some states may waive the interest, while others enforce these penalties based on their policies.
Example: In Bangalore, the interest rate for late property tax payments was reduced from 20% to 10% to encourage more timely payments. Other states have opted to waive penalties altogether.
Different methods for calculating property taxes
In general, there are 3 ways through which a municipality determines the property tax due from a property owner:
- Capital Value System (CVS): Here, tax is levied on each parcel of land based on its assessed value. A professional assessor makes the assessment with regards to different criteria such as land improvements, building contour and your local benefit area, among others. It is graduated according to the size of the parcels.
- Unit Area Value System: A property’s tax valuation based on its built-up area is based on its per unit price. Based on the property’s location, usage, and land price, the price is determined based on the expected returns. This value is multiplied by the built-up area of the property to determine the tax valuation.
- Annual Rental Value System or Rateable Value System (RVS): The tax is based on the property’s annual rental value and does not have to reflect the actual rent being collected.
House property income calculation
To simplify the process, here are a few things to keep in mind when analyzing house property income:
- Taxation is based solely on the Net Annual Value of your house(s). Net Annual Value is calculated by subtracting the property’s municipal taxes from its gross annual value. For example, if you receive Rs.1.2 lakh in rent per year on a house you rent out and pay Rs 40,000 in municipal taxes, the NAV of your home is Rs 80,000, and you must pay tax only on this amount.
- For any time during which your house(s) lie unoccupied due to a lack of tenants, you must consider only the rent received and not the total amount received. When a house rented for Rs 17,000 for four months of the fiscal year is vacant, its gross value will be Rs 1,36,000 (Rs 17,000 * 8). After deducting the municipal tax amount and the standard deduction of 30%, the tax payable on this income will be calculated.
- If your house(s) is/are vacant, but you pay municipal taxes, you may offset this loss against income from other sources during the same fiscal year, such as your salary or rent from a different property. The loss can be carried forward for up to eight years if it cannot be offset in the same year.
Property tax calculation
Property tax Pune
The PMC offers an online property tax calculator, in which you can enter the following details and ascertain the amount of tax you need to pay on your property: Location, Area, Usage, Type, Total plinth area, Construction year.
Property tax Bengaluru
The BBMP follows a Unit Area Value (UAV) system, for calculating the amount of property tax.
Property Tax (K) = (G – I) x 20%
Where, G = X + Y + Z and I = G x H/100
(G = Gross unit area value; X = Tenanted area of property x Per sq ft rate of property x 10 months; Y = Self-occupied area of property x Per sq ft rate of property x 10 months; Z = Vehicle parking area x Per sq ft rate of vehicle parking area x 10 months; H = Percentage of depreciation rate, which depends upon the age of the property)
Property tax Mumbai
The BMC uses the Capital Value System (CVS) to calculate property tax. The property tax is calculated as follows:
Capital value of property x Current property tax rate (%) x Weight for user category
The Maharashtra cabinet, on March 8, 2019, approved a proposal to exempt residential properties up to 500 sq ft, within the Mumbai municipal area limits, from property tax. Property tax bill online Mumbai is a facility that can be used to pay your MCGM property tax. MCGM portal property tax can be accessed by logging on to portal.mcgm.gov.in property tax.
The NMMC collects the property tax at a certain percentage of the rateable value of the property.
Property tax Delhi
The Municipal Corporation of Delhi (MCD) uses the ‘Unit Area System’ for property tax calculation all over the city. The formula used for calculation is as follows:
Property tax = Annual value x Rate of tax
Where
Annual value = Unit area value per sq metre x Unit area of property x Age factor x Use factor x Structure factor x Occupancy factor
Property tax Chennai
The Greater Chennai Corporation (GCC) adopts the system of Reasonable Letting Value (RLV), for calculating the annual rental value of a property. The GCC takes the following factors into consideration, while assessing property tax:
- Plinth area
- Basic rate of the street in which the property is located
- Usage of the building (residential or non-residential)
- Nature of occupancy (owner or tenant)
- Age of the building
Property tax Hyderabad
The rate of property tax in Hyderabad depends on the annual rental value, and the Greater Hyderabad Municipal Corporation (GHMC) adopts a slab rate of taxation for residential properties.
The GHMC uses the following formula to calculate property tax:
Annual property tax = Plinth area x Monthly rental value per sq ft x 12 x (0.17 – 0.30) depending on MRV and based on slab rate of taxation – 10 per cent depreciation + 8 per cent library cess
Property tax Kolkata
In March 2017, the new Unit Area Assessment (UAA) system for property tax calculation, was passed in the Kolkata Municipal Corporation (KMC). The property tax calculation utilises the concept of multiplicative factors (MFs), to account for the many critical differences in houses within the same block.
The annual property tax under the UAA system is calculated, using the following formula:
Annual tax = Base Unit Area Value x Covered space/Land area x Location MF value x Usage MF value x Age MF value x Structure MF value x Occupancy MF value x Rate of tax (including HB tax)
(Note: HB tax refers to Howrah Bridge tax, which is applicable on properties lying in specific wards.)
Property tax Ahmedabad
The Amdavad Municipal Corporation (AMC) calculates property tax payable on a property based on its capital value.The formula for manual calculation of property tax is as follows:
Property tax = Area x Rate x (f1 x f2 x f3 x f4 x fn)
Where,
f1 = weightage given to the location of the property
f2 = weightage given to the type of property
f3 = weightage given to the age of the property
f4 = weight assigned to residential buildings
fn = weight assigned to the user of the property
Property tax Gurugram
The tax payable on properties in Gurugram is based on two factors – area and use (residential/non-commercial and commercial). The best way to make your property tax payment is online, on the Municipal Corporation of Gurugram (MCG) website. When you enter your unique Property ID number or your name and address, you will be shown the amount that you need to pay.
Property tax Chandigarh
To calculate property tax for plots in Chandigarh, only the vacant plot area outside the plinth area of ground floor is be counted. This means that if the plot area is of 500 sq yards and the plinth area is 300 sq yards, the vacant plot area will be 200 sq yards, on which the tax will be calculated.
On residential lands and buildings of up to 300 sq yards, which are self-occupied, no tax is levied on persons, who had served, or are serving in the naval, military or air force, widows and differently-abled people.
Residents in Chandigarh can make online payment by searching the property details with their property ID. You can also make online payment by searching your property details with the house and sector number. Property tax can also be deposited at all e-Sampark Centres located in Chandigarh.
Property tax Nagpur
Property tax Nagpur is calculated by considering the Unit Area System. Annual value multiplied by the rate of tax, is equal to the Nagpur property tax. The NMC also offers an online property tax calculator using which you can calculate your property tax real time by feeding in the required property details.
Property tax Noida
In Noida, property tax forms a certain percentage of the annual assessed value of the property. Property taxes are calculated, based on this amount and the location of the property or land, by the Noida Authority.
Property tax Kochi
Property tax is calculated based on the plinth area in Kochi. The charges are also different for panchayath, municipality and corporation areas.
Exemptions on property tax
Even though the rules are different from one state to another and one city to another, certain types of property owners enjoy rebates on their overall property tax liability.
Across states, properties that belong to religious organisations or governments, are not liable to pay any property tax.
Exemption is typically provided to:
- Senior citizens
- People with disabilities
- Former army, navy or any other personnel employed by defence services
- Families of martyrs from the Indian Army, BSF, police service, CRPF and fire brigade
- Educational institutes
- Agricultural properties
Note here that because of the large number of exemptions offered to various segments, local bodies in India often fail to generate the income for which the potential exists. For this particular reason, there have been various experts who have suggested that the local bodies roll back some of the waivers, in order to improve their earnings. However, as such a move would be very unpopular, the chances of existing waivers being rolled back are slim.
Penalty for non-payment of property tax
Authorities across the country impose penalties, on delays in property tax payments. Depending on the city where you reside, you will be liable to pay between 1% and 2% of the outstanding amount, as monthly penalty. The Brihanmumbai Municipal Corporation charges 1% penalty per month on outstanding property tax while the penalty is 2% in Bangalore. A long delay in payments may also force authorities to attach your property and sell it, to recover losses. The NMMC had issued a list of properties that would be attached on failure of payment of the NMMC property tax.
Do NRI pay property tax in India?
NRIs (Non-Resident Indians) are subject to Indian tax laws for income earned in India. This includes rental income from properties, capital gains from the sale of assets, and income from investments within the country. NRIs must pay tax on these earnings according to the prevailing rates and file income tax returns in India.
Additionally, NRIs are required to pay property tax for any real estate they own in India. They may also be liable for stamp duty and registration fees when purchasing property. To manage these obligations efficiently, NRIs should obtain a PAN card and stay informed about applicable tax regulations.
Property tax impact on real estate in India
Affordability
Property tax significantly impacts home affordability. In cities with high property taxes, the cost of ownership rises, which can make buying a home challenging, particularly for first-time buyers. This often shifts demand towards rentals in high-tax areas.
For example In cities like Mumbai and Delhi, higher property taxes can make it tougher for first-time buyers to purchase homes than cities with lower tax rates.
Investment decisions
For real estate investors, property taxes are crucial in evaluating investment returns. High property taxes can diminish net rental income and profitability, making properties less attractive. Conversely, lower taxes can enhance investment appeal and profitability.
For example, an investor will likely choose a property with lower taxes if other factors like rental income and location are comparable.
Property values
Property tax rates directly affect property values. Higher taxes can lead to decreased property values as buyers consider the added cost, while lower taxes or rebates can boost property values by increasing affordability.
For example, a municipal corporation’s increase in property taxes might slow down property price growth or reduce demand as buyers reassess affordability.
Market activity
Property tax policies influence market activity. Higher taxes may dampen market activity as buyers and sellers await better conditions, while tax breaks or rebates can stimulate development and increase transactions, invigorating the market.
For example, a temporary property tax rebate might lead to a surge in property registrations and sales as buyers seize the opportunity to save.
FAQs
How to pay property tax online?
Most of the civic authorities now accept online payment of property tax. This can be done through their official website. You should have your Property ID number to avail this service so that the payment can be mapped to your property.
How to calculate property tax online?
Land is a state subject and every city, based on the size of population and geographical area have deduced a different property tax calculation formula for evaluating property tax amount.
Do I have to pay property tax on agricultural land?
Agricultural land is free from property tax payment liability in India.
Is property tax decided by the central government?
No, property tax is determined by local authorities, such as municipal corporations or local governing bodies, not by the central government.
Can a landlord legally require a tenant to pay property tax?
No, in India, property tax is the responsibility of the property owner, not the tenant. If a landlord insists you pay it, you can legally challenge them.
Are there any exemptions from property tax?
Exemptions may be available based on age, income, property type, location, or public service history. For vacant plots, property tax may not apply. Check with your local administration for specific details.
Can I pay property tax online?
This depends on your municipal authority. Some cities, like Bengaluru, offer online property tax payment options. Verify with your local authority if online payment is available.
What happens if I fail to pay property tax in India?
Failing to pay property tax can result in penalties. Persistent non-payment may lead to stricter actions, including legal consequences or government intervention.
Who is exempt from paying property tax?
Exemptions typically apply to charitable, educational, or religious properties, such as churches, mosques, and educational institutions.
