By CA, Vimal Punmiya
Property tax is that an owner is required to pay on the value of the property being taxed. Property tax can be defined as “generally, tax imposed by municipalities upon owners of property within their jurisdiction based on the value of such property.” There are three species or types of property: Land, Improvements to Land (immovable manmade objects; i.e., buildings), and Personal (movable manmade objects). Real estate, real property or realty is all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdiction. The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual ratable value (ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent. Vacant land is generally exempt. Central government properties of foreign missions also enjoy tax exemption without an insistence for reciprocity. The tax is usually accompanied by a number of service taxes, e.g., water tax, drainage tax conservancy (sanitation) tax, lighting tax, all using the same tax base. The rate structure is flat on rural (panchayat) properties, but in the urban (municipal) areas it is mildly progressive with about 80% of assessments falling in the first two slabs. By all accounts, the property tax is under-utilized in the municipalities and not effectively used in the panchayats, mainly due to tax payer resistance.
For income tax purpose in India, property is considered as a source of income and hence, tax is levied on that. Under the Income Tax Act, incomes from the properties are regarded as one of the heads of income. The amount of tax is calculated on the value of the property being taxed.
It is the local municipality authority that levies property tax for the maintenance of basic civic services in the city. Unlike the countries like UK where the occupier is liable to pay the property tax, it is the liability of the property owner to pay the property tax India to the concerned municipalities.
The Property India Property tax is levied on the real estates which consist of buildings or land attached to the buildings. Vacant plots of land without any adjoining building are not liable to be taxed under this head. It will rather be taxed as income from other sources. Following are the kinds of properties that are liable to be taxed under property tax India:
Residential house (self-occupied or let out)
Property Tax is the principal source of revenue in urban local bodies in virtually every part of the world. In most cities in India the property tax base has been considerably eroded by administrative and procedural inadequacies. A significant number of properties are not included in the tax base; those that are included are inaccurately assessed and collection is inefficient. Based on analysis of many cities across India, the eGov Property Tax system addresses many of the inadequacies in the current system. There are 3 main ways in which Property Tax is calculated:
ARV- Annual Rental Value
CVS- Capital Value System
UAS- Unit Area System
The eGov Property Tax application module handles all 3 property tax methods. It computerizes the revenue department of a city Corporation or Municipality and provides an entire IT system that manages properties and their taxation. It calculates the property tax demand automatically based on any of the above mentioned methods. It is fully integrated with eGov Financials which is the accounting software that manages Municipal finances, so that up-to-date reporting of tax collection is fully automated. The tax collection application also generates the Bank Deposit Challan and the Khirdi reports. The application handles property registrations, transfers, bifurcations, and amalgamations within the corporations.
PUNE PROPERTY TAX:-
Pune property Tax system has undergone few change made by the Pune Municipal Corporation. To boost the payment of the tax on time Municipal Corporation, Pune is giving concession to the taxpayers. These concessions are granted if the property. Up to 40% benefit can be made if the property is
self-occupied. Like in all other cities the civic bodies work from the monetary assistant they get from property tax. The collected money is used for the development of the city and government can save itself form monetary crunch if the payments are made on time. This step made by PMC is very good, which will enhance the collection. To boost the process further Citizens’ Facilitation Canters have been made to decentralize the collections decentralize the collection of the tax in Pune. Even Pune Municipal Corporation (PMC) has 21 branches and six extension counters of Cosmos Co-operative bank. People are buying property and with the tax of approximately Rs. 300 Crs are estimated to be collected. The due dates for the payment of tax keeps on changing as people don’t pay tax on time. Property tax rates are still the same as there is no hike made in them by the government. Work is going on to overhaul the property tax system in Pune. The self-assessment schemes will be introduced soon that will really omit the waiting period for tax property bill.
If your construction is eco friendly i.e. eco-housing then you can get rebate on property tax in Pune. In addition to all the changes, further relief is given to the taxpayer by making an online website on property tax by PMC. It has all the necessary information on tax with reports on past few years. In website search can be made by name, address. The property detail and tax dues details can be checked online. For the assessment assessor calculates the Annual Ratable Value (ARV). Property tax assessment is done and tax bill is send to the taxpayer. If you are not satisfied with the tax details then you can make tax appeal by giving proper proof in the favor of your appeal. It is always advisable to take professional help from a lawyer or consultants. They can present your case in a professional manner before court and give you the minutest detail. Those who have purchased commercial or residential property after 2005 can save themselves from paying heavy tax throughout. To avail this they need to make an appeal, which will challenge the tax assessment notice served by the civic administration. Property tax in Pune like other city can only be transferred if proper documents are submitted in Municipal Corporation’s office. Pune Municipal Corporation is putting all effort to help people. It is planning to make the payment of tax online. Further details on property tax in Pune, Payment, due dates, housing property tax et al can be checked in the official in the website by Municipal Corporation, Pune.
KOLKATA, 24 DEC, 2010:
Property owners have urged the Kolkata Municipal Corporation (KMC) authorities to reduce municipal tax.
This has come out after analyzing the suggestions objections they have given in connection with the new method of calculating municipal tax commonly known as the unit area assessment (UAA) in KMC parlance. This is for the first time in Kolkata’s civic history when hearing was given to property owners to make them aware of system that is followed to calculate municipal tax. The new method is likely to be introduced from April 2011. The annual valuation of property will be calculated once in five years and the owners will be able to deposit municipal tax on their own. “The municipal tax of residential buildings and flats are likely to come down,” said a senior civic official. The system will stem corruption in the assessment department making it transparent. The municipal tax will be calculated on the basis of several factors like infrastructure available in the area where the property is situated, its proximity to markets, main road and Metro services. As the present tax burden is high, owners of many old rented houses fail to give municipal tax and the arrears run into several hundred crores. Also, the annual valuation of property is often hiked when the owners refused to pay graft.
KOLKATA, 15 FEB 2011
The committee set up by the state government to streamline property tax structure in the municipalities has recommended reduction in the rate of tax to benefit the owners and augment revenue of civic bodies. The committee recommends reduction in the rate of municipal tax from 6 per cent to 21 per cent of the annual valuation from the 10 per cent to 30per cent band. This will help bring more people within the purview of property tax and thus increase revenue of the civic bodies. It has recommended waiving municipal tax of the economically challenged people whose property measures less than 500 sq ft. Similarly, municipal tax of residential buildings whose annual valuation is up to Rs 1000 can be waived. It proposes to introduce a self-assessment system to benefit property owners. A senior official of the state municipal affairs department said many housing complexes, flats, shopping malls and halls where ceremonies are held have come up in the municipal areas.
But without proper guidelines the municipalities cannot assess property and so lose financially. Also, as municipal tax is calculated arbitrarily, many owners, with the connivance of some civic employees, manipulate tax of structures can be calculated on the basis of the rent it fetches per square foot. In many municipalities the assessments of buildings where state government office and those of autonomous bodies are housed have not been done for years. The panel has recommended tax be deducted from the budgetary allocation of the departments and the proceeds given to the municipalities after taking permission of the state finance department. This will help the municipalities augment their revenue. The panel has suggested waiver of tax arrears on farm land situated in the municipal areas.
DELHI PROPERTY TAX
The property Tax in Delhi is calculated on the basis of unit Area Method (UAM) by the MCD and applies to the whole of Delhi (however, only some parts of South Delhi are included) except Central Delhi (the property tax for Central and the rest of South Delhi is calculated by the NDMC). The UAM was introduced in the year 2004 in Delhi and adopted by MCD. The NDMC adopted the Unit Area Method in 2009.
HISTORY OF UNIT AREA METHOD:
Prior to 2004, property tax in Delhi had more of a subjective element involved in the existing method of property tax calculation in Delhi. This made the procedure more prone to malpractice and revenue loss. The government was apparently incurring huge revenue losses as it could only collect a small fraction of the total revenue. This called for an urgent introduction of a standard mechanism for determining the potential value.
The area based assessment of property tax was then suggested by the experts. In November, 1997, the Union Ministry of Urban Development circulated a set of guidelines to the States and Union Territories for the property tax reform adopting an area-based taxation with fixed rates based on the characteristics of the buildings.
The MCD (Municipal Corporation of Delhi) passed a resolution on 22 Jul, 2002 to eliminate the shortcomings of the existing property tax system. At the same time, MCD was also of the opinion that there was a dire need for administrative reforms in the assessment methods being used for collecting property tax so as to improve the overall tax administration. Thus, the Expert Committee of Unit Area Method of property tax assessment for MCD was formed on 09th July, 2002. In the final report, the Committee recommended that the first step for introducing the reforms was that the Government should take the policy decisions rather quickly press harder on amendment of the DMC Act.. Consequently, amendments were made in the DMC Act as per the Committee’s recommendations for adopting the Unit Area System in NCT, Delhi.
Three advantages of area-based method are that it’s simple, precise and transparent. The property tax is calculated by fixing the unit price per sq.mt. Or sq. ft. The property tax for a particular property is calculated by multiplying the unit rate by the property area and other multiplying the unit rate by the property area and other multiplication factors for age, location, use, occupancy, structure, etc. the area-based method is practiced in states like Gujarat, Up, MP, Andhra Pradesh and Tamil Nadu. Being introduced in cities like Ahmadabad, Hyderabad, Bangalore, Patna and Chennai this system has simplified property tax calculation, tax administration and also reduced the corruption scope.
Another recommendation of the Expert Committee was to constitute a Municipal Valuation Committee every 3 years. The recommendations of Valuation Committee primarily considered the Expert Committee’s report and adopted the colonies classification and other factors. The Municipal Valuation Committee’s recommendations were implemented from 01st Apr, 2004.
After three years the second MVC was appointed on 20th Sep, 2006 by GNCTD and prepared an Interim Report that was submitted to the MCD. The standing Committee of the MCD decided to reject the recommendations of the report and thus the MVC-II report was not made public and no steps were taken. No further action was taken by the MCD/Government of NCT of Delhi till the next MVC (III) was set up in Sep, 2009 as per the DMC Act of 1957.
Role of MVC III
Below are the functions of the MVC-III
Make recommendation to the MCD for Classification of vacant lands & Buildings falling under any ward of Delhi into groups of buildings & land and colonies.
Fixing the base value/ unit area for vacant land or per unit area of covered building space and also the factors.
Considering the objections as laid down by the Delhi Municipal Corporation Act of 1957 (as amended) and make recommendations accordingly.
Performing all other functions as required by the Government.
The whole of area under the jurisdiction of MCD was divided into 8 categories namely, A, B, C, D, E, F, G and H. Among there, ‘H’ comes under the residuary category. All the properties falling under different categories were, further divided into residential/ non- residential. A base unit area value was derived for the self-occupied pucca residential property in each category and different multiplicative factor were applied to calculate the annual value of each property type. The multiplicative factors considered were occupancy were occupancy status, type of structure (pucca, semi-pucca, kuchcha, etc.), age of the property and property type (residential/non- residential).
The parameters adopted by the MVC to calculate the property tax are capital value of the land, prevalent rental value, age of colony, infrastructure (physical), social infrastructure, tyoe of colony, proximity centers, location of colonies, metro lines and stations.
MUMBAI PROPERTY TAX
Mumbai property tax system will be given a face-lift soon to remove the inequality in the system as different tax are charged to the properties located in suburbs and island city. The whole property system in Mumbai work on the Mumbai Provincial Municipal Corporation Act, 1949. It is one such act on property that imposes various taxes on the property in Mumbai. Except for burial grounds, land used for public worship and public charity all other properties and land need to pay tax under this act. The Mumbai city is divided into wards and property tax rates are fixed ward-wise by Mumbai Municipal Corporation. For the property tax assessment purposes area of property is considered. Different system is followed to do the tax assessment of building of schools, (BMC) act used to calculate property tax. According to this, property tax is calculated on this basis of the rent the property is likely to earn. After doing the assessment the property tax appraisal is done which mean placing the value on property.
MUMBAI PROPERTY TAX RULES
The full liability of paying property tax lies on the shoulder of the holder of the property even if he has given property on rent. In Mumbai city the owners need to file property tax returns annually. The property tax return form will ask for detailed information on the size of the property, its location, age of building etc. The Municipal Corporation of Greater Mumbai also known as Brihanmumbai Municipal Corporation (BMC) has its official website on property tax and is one richest corporation in India. It gives information on how, when and where to pay property tax. Property tax in Mumbai becomes due twice a year. Concessions are granted in percentage if taxpayers pay tax on time.
In case property tax in not paid on time demand notice is served to the holder of the property. Further if taxpayer does not pay tax within 15 days of the served notice a warrant is issued and the property is seized. In case to transfer the property tax, the original holder of the property has to give notice of transfer of the Mumbai Municipal Corporation. Only after getting the notice the tax will be transferred otherwise it will be levied on the same person. The owner of any illegal building or apartment in Mumbai is required to pay double the amount of property tax. The extra amount is charged as a fine on them.
There are many property tax consultants and firms in Mumbai, which give property tax advice. These knowledgeable consultants specialized in the area of law can represent you in court related to any matter concerning property
BMC’S NEW PROPERTY TAX SYSTEM OF MUMBAI
02 February 2011
The new property tax system, to be introduced by the Mumbai municipal Corporation, is expected to impact less than 15-20 per cent of the city’s flat owners, given that most of the residential properties in the city measure less than 500 square feet, official sources said.
The new tax system will calculate property tax on the basis of capital value of the property as against the current system which calculated property tax on the basis of the rent commanded by a property.
According to the data collected by the property tax department of the Brihanmumbai Municipal Corporation (BMC), over 70 per cent of the properties for which the BMC has data measure less than 500sq feet in area. The civic body has digitized details of 2.27 lakh properties of the total 3.35 lakh properties in the city.
According to officials from the property tax department, a comprehensive study of data revealed that over 70per cent of the total 2.27 lakh properties analyzed measure less than 500sq feet in area
Under the BMC’s digitisation process, the civic administration analyzed details regarding 2.27 lakh properties for which data was available. Rent in South Mumbai is frozen due to the Rent Control Act, which allows owners there to pay low property tax while suburban properties shell out more tax due to high rents. With the system, the gap is expected to be bridged and property tax payments balanced.
Meanwhile, the BMC, with a view to present an “honest” budget, would likely concentrate on the actual implementation of ongoing projects rather than announcing grandiose schemes that would take years to complete.
According to officials, the BMC wants to complete ongoing projects for two reasons-the first being the civic election next year and the second, being the approach of the new commissioner Subodh kumar.
For the first time in some years, according to officials, the BMC budget may shrink in outlay if the commissioner sticks to his plan of concentrating on ongoing projects without borrowing money. The usual approach is to allow a 10 per cent increase. If this is followed, the budget could be expected to jump to Rs21, 000 crore last year’s outlay of Rs20, 417 crore.
According to officials, the civic body may increase taxes nominally, though, without burdening the common citizen too much. To bring in further parity, the BMC could increase some taxes levied on citizens, especially water charges. Civic sources say that despite opposition from political parties, the water tax might be hiked by 35 per cent.
It is widely believed that the corporation would explore fresh revenue as also capital expenditure in the next budget.
In a bid to restrict its expenditure within the annual income, the BMC, according to analysts, would try to shore up substantial surplus. As a consequence, the BMC could, for the first time in a decade, curb recruitment. The civic body currently has 18,500 vacancies, of which only 4,000 vital posts would be filled up next year, according to sources.
Meanwhile, pressure is being built on government agencies that have pending bills with the corporation to pay up. To boost revenue, last month Kumar asked the Railways to pay up rs108 crore or face water cut.
BMC RELEASES NORMS FOR NEW PROPERTY TAX SYSTEM
Mumbai, October 15: As an introductory move toward determining the calculation for the new property tax based on capital value, the BMC on Friday announced the value it would grant to factors like the age, construction and utility of a structure.
While the civic body has offered old building a sizeable concession on the grounds of depreciation, it has allotted a petty slash for taller buildings, as the capital value of a property is being computed according to its height. The BMC has also appointed a three-member panel that has fixed these rates of concessions. Though the weight age value manual has been released, the civic body is yet to arrive at the crucial rate of tax. Municipal Commissioner Swadheen Kshatriya said that the corporation will finalize the rate of tax as soon as the system is enforced. The new system could be set in motion from the billing month of September this year,” he said. In the new capital value system, the amount – a percentage of which will be the property tax – will be based on the actual cost of the property. The figure will be based on the stamp duty ready reckoned that the government publishes every year. The new system – which came into effect from April 1, 2010, but could not be implemented as the tax rates had not been fixed- will be introduced in phases across the city, replacing the existing rate able value system.
The new property tax based on the capital-value system will be applied with retrospective effect from April, 2010. It will be based on the property’s current market value as well as give weight age to five other factors including area of flats, age of building, usage of land and type of construction. Earlier, property tax was computed on the basis of rent paid by tenants. The civic body decided to change the capital value-based property tax system in order to bring about parity in taxation.
In the rate able value-based system, the property tax was calculated on the basis of the rent which any rental property is likely to generate and for self-occupied properties it is based on a notional value. But, under the capital value-based system, the property tax is to be calculated based on the market value of the property. There are several factors like flat area, age of building, usage of land type of construction that is also considered. To determine the market value, the BMC has adopted the rates from the stamp duty ready reckoner with slight variations. Once the market value is decided, it will remain constant for a period of five years, while the tax rate will be decided every year.
Under the new capital value-based system property taxes are likely to go up in south Mumbai, while residents in the suburbs may get some relief from the current property tax levels.
According to Ashutosh Limaye, local director Strategic Consulting, Jones Lang LaSalle India, the property tax system is only being rationalized. “In south Mumbai, owners have been enjoying low property tax for a long time though property prices were high. Now, under the capital value system, the tax would be rationalized. People, who are living in the suburbs, have been paying higher property tax despite their property value being lower than South Mumbai properties,” Mr Limaye told Moneylife.
Taxes in old buildings in the island city have not changed much due to the Rent Control Act, whereas most buildings in the suburbs do not come under the Rent Control Act and pay hefty taxes despite the capital value tax will not be more than twice the rateable value tax, and will not decrease to less than half the existing tax on the rateable value system.
“This is a welcome move by the BMC after ten years. Rented property will now have a better future,” Santosh Kumar, author of the Stamp Duty Ready Reckoner & Market Value of Flats in Mumbai, told Money life. He explained that under the rateable value system, tax for rented property was charged on the amount of the rent payable, but if the property was self-occupied one would have to pay tax on a notional rent fixed by the BMC. “Owners in the elite South Mumbai areas who required paying more tax on their property. Under the new system, the tax will be almost the same whether property is given on rent or self-occupied. The only thing that is not clear yet is what the rate of tax will be,” Mr. Kumar said.
Residents, who live in a flat that is less than 500 square feet 9sq ft), will have to pay the existing property tax rate for five years and this will be charged annually. “Another thing in the new system is that those people who are paying very less will also be benefited, because their taxes will continue according to the old tax rates if their area is up to 500 sq ft,” Mr. Kumar said.
Mr. Kumar felt that people were opposed to the new system primarily due to ignorance. “They do not know what the new system is. Only because some media reports and vested interests have given the impression that taxes will shoot up, that is not right,” he said.
Raj Purohit, members of the Maharashtra Legislative Assembly representing Colaba in South Mumbai, is critical of the new structure. “Instead of increasing property taxes in South Mumbai, property taxes in the suburbs could have been reduced. The capital value-based system is hypothetical. Even if a building is valued at Rs100 crore, it may not fetch a rent of even Rs10, 000. The issue has attention after the hue cry from resident in the suburbs,” Mr. Purohit said.
Mr. Purahit, who is also president of the Mumbai Tenants Association, told Money life, “There are many people in the island whose property value is in millions of rupees but their economic condition is poor; how will they pay such a huge tax? This system will bring imbalance in the city and it will also hamper commercial property investments as corporate offices will prefer other cities like Bangalore, Delhi or other major cities in the wake of higher property taxes.”
The BMC has already issued the property tax bill for the first half of the year according to the rate under the old system as the new system was not ready to be implemented. The bill for the second half would likely be issued in December and if there is any change in the rate, the difference for the first half would be adjusted in this second bill, Mr. Kumar explained.