26 SEPTEMBER, 2019

In India, property tax is levied on the ownership of every form of real estate. The funds collected from property taxes are utilised to maintain and provide various public facilities like repairing roads, sewage disposal systems, electrical work, etc. That’s why paying property tax on time is considered a sign of being a responsible citizen.
Property tax is commonly known as house tax, which is applicable for office establishments, houses, commercial buildings, etc. Evaluating the type of your property is essential before paying the property tax.

If you are a first time home buyer, you need to understand the concept of property taxes in India. Property tax is the liability of the property owner, not the occupier. You need to note down that the amount payable to the income tax department under the title of ‘income from house property’ differs from the cost of property tax to the municipal authorities.

Calculation of property tax

The local municipal authorities evaluate assessed value of property to calculate the proportionate tax to be levied on the same. Property tax is levied by local authorities like municipal corporations. Hence, the amount of property tax and manner of valuation differs from one municipal authority to the other.
There are three methods by which property tax is calculated. Local municipal corporations use these methods to assess the tax due accordingly.

  • Annual Rental Value (ARV) System

This system is based on the annual rental value of any property, which is as decided by the municipal authority. Hence, other factors like location, facilities, size, etc. also influence the yearly rental value of the property. Examples of municipalities following this system of property tax include Hyderabad and Chennai

  • A system based on the Capital Value

BMC, Brihanmumbai Municipal Corporation uses this system to determine the property tax throughout the city. Unlike the ARV system, the actual market value of any property is used to evaluate the property tax according to this system. The government determines the market values of different properties based on locality and revises them annually.

  • Unit Area Value System

This system is used in many Indian cities, like, New Delhi, Patna, Kolkata, etc.
As per the Unit Area Value system, the cost per unit value of built-up area of the property is used to calculate property tax.

Methods to Pay Property Tax

Mostly, You can pay the property tax on your house online by using the website developed by the respective municipal authority. The process is now streamlined and thus allows fast, convenient, and mobile payment. You can also pay property tax offline by visiting the municipal corporation office or designated banks that the municipal corporations have partnered with. You should remember that if you delay paying the property tax, you will attract the late fine as well as the interest on the due amount.

Benefits of Paying Property Tax

Paying of property tax not just enables the local government authorities to provide you with civic amenities, it can also benefit you by way of reduced Income Tax outgo. The calculation of income from house property takes in to account the ‘Gross Annual Value’ of your property. If you pay the property tax on your property, you can deduct that amount from your property’s Gross Annual Value. This will eventually reduce your income from house property and hence your total tax outgo.

There are also other ways where having a property can benefit you to reduce your tax burden. One such way is to avail a home loan, which enables you to take benefit of tax deduction on the amount you pay as an interest for your home loan.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.