Everything you wanted to know about Property Tax

Did You Know

As a property owner, there are many taxes the government collects from you and the most important and best known amongst these is the property tax. The property tax is a major source of revenue for local government bodies and it is used for city upkeep and maintenance.

A brief history of property tax in India.

Property tax has been mentioned in epics like Manu Smriti and Arthasastra. Centuries ago, rulers would levy a small tax on farmers and landowners, which would be used to enrich the kingdom’s coffers. The British streamlined the process, with land revenue forming a major chunk of the treasury’s revenue. They centralized the process, by appointing individuals to collect tax on behalf of the crown. This led to tax collectors and a formal tax collection system in India.

What Is Property Tax?

The ‘property’ on which property tax is to be paid is a real estate asset which is tangible and owned by any person. This property can be residential, commercial or space which has been rented out to some other person. The owner of the property is liable to pay a sum of money to the local government. This amount is calculated on the basis of the formula, which is notified by the state authorities. The sum is to be paid annually the receipt should be preserved as it will be evidence of due diligence when the property is to be sold. Property tax varies from location to location and can be different in different cities and municipalities.

The property tax is applicable to all and no city or village is exempted from paying it. Even farmers in remote villages have to to pay this amount to the local authority. If the amount is not paid, a penalty is imposed.

What are the factors that influence property tax?

A) Location and size of the property.
B) Whether the property is under-construction or ready for occupation.
C) Gender of the property owner – female owners may get rebates.
D) Age of the property owner – senior citizens may be charged lower rates.
E) Facilities provided by the municipal body in the locality.

Why it is important to pay property tax?

When there is a dispute over the property, the property tax receipt proves ownership. Also, when property is purchased, the title of the property needs to be updated in the local authority books. It is only after all arrears are paid, that the name can be transferred to the new owners. 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.

To get your property registered in your name at the local body books, you have to prove that you own the property. The list of documents that you may need to show will include a copy of receipt of the last paid property tax.

A property tax receipt is also an important document for getting a loan against the property.

How is property tax calculated in Mumbai?

The location of the property, the occupancy status (self-occupied or rented out), type of property (residential or commercial or land), types of amenities provided, construction age, type of construction (multi-storey, single floor or kutcha house), Floor Space Index (FSI) and carpet are all considered when calculating tax liability.

The formula used by Brihanmumbai Municipal Corporation:

Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor

What is penalty for non payment of tax?

Non-payment of property tax is a severe offence and can attract heavy penalties and fines. These vary from state to state. Usually, late payments towards property tax can invite the interest of 5 to 20 per cent on the payable sum, depending upon the policies. In extreme cases, the property can even be confiscated.

Can property tax be paid online?

Paying property tax used to be a cumbersome process in the past, but today most municipal corporations provide the option of paying property tax online, streamlining the process and saving precious time.