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Know all about property tax in India and how is it calculated.

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Property Tax in India

What is Property Tax – Property Tax is the tax that is charged by the local government on real estate including land owned by you. The value of property forms the basis of this tax. Many local governments calculate the property or house tax not only on the basis of the size of the property but its location, occupancy status, covered area and quality of construction. The money that is generated through property tax is used by the government in order to maintain the infrastructure and for purposes like repairing of roads, snow removal, building schools etc.

Property tax is also termed as Millage Tax in few countries. In India, property tax is also referred to as ‘House Tax’. Although the power of taxing is vested in the hands of state yet it is delegated to the local bodies like municipality. However, the rate band, tax collection procedure and valuation method is defined by the governing authority. Annual rental value (ARV) forms the basis of the tax.

The properties that do not generate any rent or are occupied by the owner are assessed on cost. The figure, thus, obtained is then converted into annual rental value (ARV) with the application of a percentage of cost that usually stands at 6%. A vacant land is exempted from this tax. The properties that fall under the purview of the central government are also exempted from property tax.

Any property that is deployed for foreign missions does not fall in the purview of property tax. A number of service taxes like lighting tax, water tax, sanitation tax, drainage tax etc walk hand in hand with the property tax but the tax base remains same for all of them.

According to various research and studies, many developing countries like ours are facing a dip in the property tax base. This is mainly due to inadequacies in the procedure of taxation and lack of information and knowledge regarding properties as the ones that get included are not accurately assessed and majority of properties escape from being included in the base rate.

If you own a property you ought to pay the property tax. You all are well versed with the fact that ‘Income from house property’ forms a part of your total assessable income for the year.

Property Tax in India – How is Annual Income from Property Calculated?
In case of a let-out property (LOP), the annual income may comprise of the actual rent received, valuation of the property by the local municipal body and fair rent (rent of similar properties in the neighbourhood).

Calculation of Property Tax –
The following procedure guides you through the process of property tax calculation in India.
  • The very first step for you is to figure out the assessed value of the property that you own. This would include the buildings and lands in your name. This amount would give you the estimated value of your property as calculated by the official tax assessor. You need to put together the figures generated through this for both land and buildings in your name for the purpose of calculating your property tax.
  • Now, you need to check out the estimated property tax rates for the upcoming year. Previous years’ tax rates and their variations may help you through the process.
  • The next step would be to subtract any property tax exemption for which you qualify from the total assessed value of your property. The deductions that fall under the head of property tax vary from state to state. You need to consult the local tax office in order to get your hands on the deductions that you are eligible for. In majority cases, deductions on property tax are extended to disabled persons, widows and those who have crossed the age of 65 years.
  • Thereafter you need to multiply the amount that you get after the deductions (if applicable) with property tax rate for the upcoming year. In order to know the total estimated amount that you have to pay as property tax you need to add up the amounts calculated for each taxing district.
Note - It is important for you to note that the amount calculated by you is just an estimated reflection of what you might have to pay. The figure obtained by you may significantly vary from the actual amount that gets accrued in your name. Usually, the determination of official tax rates takes place at the end of each fiscal year. The advice would be to keep a higher budget than the estimated amount under the property tax head in your financial planning.

As Property Tax serves to be the major source of revenue generation of urban local bodies and municipalities in order to keep intact the basic civic services in the city, it is our prime responsibility to pay this tax with full honesty. After all it is your city and only you can make it a better place to live in for yourself as well as for our generation next.

  • k b gadekar:
    1.What should be the tax revision after a slab of 4 years?
    2.How much deduction is allowed for a) widows b) sr.citizens?
    01-Mar-2016 01:02 AM