Complete Guide on Property Tax in India

When you own a property, you pay a one-time amount but along with that you also have to pay property tax to maintain the ownership of the property. In short, property tax is a yearly amount paid by the owner to the Municipal Corporation or the state government. 

Property tax payments are a source of income for growth and civic bodies in India. The owner must pay the property tax yearly. Let's take a look at the property tax details and the laws regulating it in India.

What does Property Tax mean in India?

Property tax in India is set by the government on the property's value owned by a person, company, or any other legal entity. The local government, such as the municipal corporation, usually sets the tax, payable annually by the property owner. The property tax is calculated based on the property's current market value, which the government decides by a property valuation process.

The funds collected from property tax are used to fund local government services such as garbage collection, road maintenance, street lighting, public parks, and other civic amenities. The amount of property tax payable depends on multiple factors.

Property tax is a vital source of revenue for local rules in India and is used to fund various evolution projects and enhance the standard of living of citizens. Non-payment of property tax can result in fines and legal actions by the government. There are two types of property tax in India - Annual Property Tax and Capital Gains Tax. 

Calculation of Property tax in India

Property tax in India is a tax levied by the local municipal authorities on owners of real estate properties such as residential houses, commercial buildings, land, etc. The tax is imposed based on the annual value of the property and is calculated as a percentage of that value. The method of calculating property tax may vary slightly depending on the state and municipality in which the property is located.

Here is a general overview of the property tax calculation process in India:

1. Determine the Annual Rental Value (ARV): The ARV is the potential rental income that a property can generate in a year. It is calculated based on size, location, and property type.

2. Calculate the Annual Value (AV): The AV is 70% of the ARV. This is because the income tax department assumes that a property will be rented out for ten months in a year and will be vacant for the remaining two months.

3. Determine the Property Tax Rate: Property tax rates vary from state to state and municipality to municipality. It is usually a percentage of the AV. For example, the property tax rate in Delhi ranges from 12% to 20%, depending on the category of the property.

4. Calculate the Property Tax: The property tax is calculated by multiplying the AV by the property tax rate. For example, if the AV of a property is Rs. 1,00,000 and the property tax rate is 15%, then the property tax payable would be Rs. 15,000.

5. Application of deductions and exemptions: Some states and localities offer deductions or exemptions that can lower the tax owed property's amount. There may be exemptions for veterans, seniors, or low-wage owners. These deductions are usually made after calculating the tax

6. Billing and payment: The local government usually collects and bills property taxes. The owner can pay the tax bill in one lump sum or yearly Installment.

It is important to note that certain deductions and exemptions may apply to the property tax calculation. For example, some states offer a discount for prompt property tax payments. In contrast, others provide exemptions for properties owned by specific categories of people, such as senior citizens or disabled persons. It is advisable to check with the local municipal authorities to understand the particular rules and regulations governing the property tax calculation in your area.

Property Tax Act of India

The Property Tax Act in India refers to the laws and regulations governing the taxation of properties in the country. The property tax act in India varies from state to state, with each state having its own laws and regulations governing the taxation of properties. 

The act provides for the imposition of penalties and fines for non-payment of property tax and allows for the assessment of properties that have not been previously taxed. The property tax act in India plays an important role in generating revenue for local governments and is an essential source of funding for the development and maintenance of local infrastructure and services.

Property Tax Calculations in Major Cities of India

In India, the property tax is calculated depending on the ‘Annual Value’ AV. The AV is calculated after selecting the area, construction, property size, type of building, and other pertaining factors. Thus, this value varies from state to state and property to property. It includes drainage tax, Water Tax, and Lighting Tax. It is estimated under two broad types: Self Occupied or Let out Property. According to the data provided by the municipal corporation of various cities, here is a general overview of the property tax rates in some of the major cities in India:

1. Delhi: The property tax rates in Delhi range from 12% to 20%, depending on the category of the property. The types include residential, commercial, industrial, and institutional.
2. Mumbai: The property tax rates in Mumbai are based on the property's Annual Rateable Value (ARV). The ARV is calculated based on the carpet area, construction type, age of the building, and other factors. The tax rates range from 0.6% to 1.8% of the ARV.
3. Bangalore: The property tax rates in Bangalore are based on the property's Annual Rental Value (ARV). The ARV is calculated based on size, location, and property type. The tax rates range from 0.05% to 0.2% of the ARV.
4. Pune: The tax calculation of Pune offers an online calculation in which one can fill the required details and get the tax amount they should pay.
5. Chennai: The property tax rates in Chennai are based on the property's Annual Rental Value (ARV). The ARV is calculated based on size, location, and property type. The tax rates range from 0.5% to 1.0% of the ARV.
6. Nagpur: Property tax in Nagpur is estimated by evaluating the UAS. The annual value is calculated with the following formula (Annual value*the rate of tax = Nagpur property tax).  It also offers an online property tax calculator to estimate your property in real-time time by feeding in the necessary property facts.
7. Noida: The property tax in Noida forms a certain percent of the annual assessed value of the property. The tax is calculated on this amount and the location of the land or property.
8. Kochi: In Kochi, the property tax is computed depending on the plinth area. 

It is important to note that the property tax rates and the calculation method may also vary within a state. It is advisable to check with the local municipal authorities to understand the specific rules and regulations governing the property tax calculation in your area.

Rules and Regulations of Property tax in India

The rules and regulations of property tax may vary depending on the country or state where the property is located. One must consult with a tax-skilled or local government office to understand the specific rules and regulations about property tax in their state. Following are some general rules and regulations regarding property tax:

• The government set property taxes on land and buildings.
• The amount of property tax payable is estimated based on the property's value.
• The property's value is usually defined by a government-assigned assessor, who believes the property's size, place, and condition.
• Property tax rates may vary depending on the city, county, or state where it is located.
• Property tax is paid yearly, and failure to pay property tax can result in fines and other additional charges.
• Some jurisdictions offer tax immunities or reductions for specific real estate, such as those used for charitable, religious, or academic purposes.
• Property owners have the right to discuss the assessed value of their estate if they believe it is wrong.
• Property taxes fund public services such as roads, schools, etc.

Conclusion

Property tax in India is an effective source of revenue for municipal firms and other local bodies. State laws govern the property tax system in India, and each state has its own set of rules and regulations for setting and collecting property tax. 

In recent years, there have been efforts to modernize and streamline the property tax system in India. Many cities have executed online payment systems and have made efforts to improve the accuracy of property valuations. Yet, there are still some problems that the government is looking after. Overall, property tax is essential to the tax system and will always play an important role in funding local government services and infrastructure projects. You can contact us at +919284293610 or [email protected] for more concise information. Get in touch with us today.

FAQs

How long can you go without paying property taxes in India?

Paying property taxes on time is essential to avoid fines and possible legal issues. The specific time for paying property taxes in India may vary depending on the state or city where the property is situated and the applicable laws and rules ruling property taxation in that area. It's suitable to consult with a tax professional or government agency in your area for specific details on property taxes and other deadlines.

Who can collect the property taxes in India?

Local government bodies such as Municipal Corporations, and Municipal Councils. Municipalities usually collect property tax in India. The same body collecting property tax may vary depending on the property's location.

Do tenants pay property tax in India? 

The obligation to pay property tax generally falls on the property's owner rather than the renter leasing the property. It means that, in most cases, renters are not directly liable for paying property tax on their rented property.

Yet, in some cases, the property tax may be included as part of the rent the renter pays. It can occur if the owner gives the tax cost to the tenant through the rental contract. If tax is included in the rent, tenants must ensure that they know the amount being paid and that it is being paid to the suitable state agency. Eventually, the duty of paying property tax rests with the owner, and failure to pay property tax can result in fines or legal action.

Who is exempt from property tax in India?

Some properties and people may be exempt from paying property tax. The rules and laws of exemptions vary from place to place. The following are the people who are exempted from property tax:

• Religious institutions: Properties owned by religious institutions such as temples, mosques, and churches may be exempt from property tax.
• Charitable organizations: Properties owned by charitable organizations identified by the government are exempted.
• Government properties: Properties owned by the government, including public parks and government buildings, may be exempt from property tax.
• Agricultural lands: Agricultural lands and properties used for agricultural purposes may be eligible for property tax exemptions or deductions.
• Educational institutions: Properties owned by educational institutions such as schools, universities, and colleges may be eligible for property tax exemptions or premises.

It's essential to note that the rules related to property tax exemptions and beliefs vary from state to state.

How much does property tax increase every year?

The amount by which property tax increases yearly can vary depending on various factors, such as the property's location, the type of property, and the relevant laws and rules in the area. Local governments typically determine property tax rates that can change yearly.

Property tax rates may be subject to a limit or a cap in some areas, which may restrict how much they can increase each year. There may be no such limits in other areas, and property tax rates could increase significantly from year to year.

About The Author:

Adv. Rishika Chahar is a dedicated advocate with expertise in Human Rights, Civil, Criminal, Family, Intellectual Property, Constitutional, and Corporate law. With over 4 years in legal practice and 12 years in corporate HR, she's known for her fierce advocacy and commitment to clients. Rishika blends a deep understanding of the law with innovative strategies, ensuring honest and transparent representation. Outside the courtroom, she volunteers with Bright Hopes NGO, positively impacting her community. Practicing in Delhi, Gurgaon, and Haryana, Rishika is committed to justice and integrity in all she does.