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Property Tax in India

What is Property Tax?

Property tax is the yearly sum paid by a landowner/property-owner to the municipal corporation of his or her area or local government. Property can include all tangible real estate property, the individual’s house, office building and the property that he or she has rented to others.

In India, Property Tax is payable only on property that is ‘real’, that is, land with and without man-made constructions. The municipality of an area evaluates different categories of properties, of that area, to decide on the tax as per its value. It also determines its appraisal value. The amount collected through Property Tax is utilised for the improvement of the local infrastructure like maintenance of roads and schools, repairing roads, etc. Property Tax varies between different locations within a city, and between cities and municipalities.

Types of Property Tax

Properties are classified to help the government streamline the process of estimating taxes basis certain specific criteria. Property in India has been divided into 4 classifications.

Personal property: Portable man-made property like cars, buses and cranes
Land: Land in its rudimentary form, devoid of any form of construction
Improvements and upgrades made to land: Man-made constructions on land that cannot be moved like buildings
Intangible property: Property that is not in its tangible form

How to Calculate Property Tax

The calculation of Property Tax varies basis the following:

Factors that have to be taken into consideration while calculating Property Tax:

The state or municipal corporation, type of property, etc.
Calculation methods vary among different civic corporations
Accurate details regarding the locality, status of occupancy – rented or self-occupied, type of property – land, residential, commercial, infrastructure offered, floor and carpet area, number of floors of the construction, etc.
The tax amount can be automatically calculated on the municipal corporation website when you mention the required details accurately

The standard formula that is followed during the calculation of Property Tax is:

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

It is important to note that the amount of tax payable in the country depends on where the property is situated, as taxes vary from one state to another. Civic corporations use different techniques to assess the tax. The general overview of such calculations, however, is the same.

Late payment towards Property Tax is liable for additional charges as a fine, which varies from state to state. Late payment charges between 5% and 20% can be waived or slashed basis individual state policies.

Property Tax Deductions against Income

‘Deductions from Income from House Property’, as mentioned under Section 24, is applicable in the following instances.

If you reside in the only property that you own, there will no income from the house property. Income received in the form of rent and value of additional houses received annually, will be subjected to tax after deductions made under Section 24.
If you are the owner of more than one property, the Net Annual Value of the same, barring the house in which you reside, will be considered as your income.
In case you offer your house or houses on rent, the rent received is considered as your income.

Deductions under Section 24

If you own property in India, you will be eligible for two kinds of deductions under Section 24 of Income Tax Act. They are:

Standard Deduction: If you are a taxpayer, you can enjoy an exemption when the income you receive from your house or houses is 30% of the Net Annual Value. In that case, this income is not taxable. However, this is not applicable when you reside in the house that you own.
Interest on loan: The interest that you pay on the principal amount of your home loan for purchase, renovation or construction is exempt from taxes. The interest is the amount that you pay over and above the principal amount. There are three sub-clauses in this category:
- Exemption for loans taken for a house that is occupied by you is of up to INR 2 lakh.
- Even if you have opted for a loan for buying or construction of a house before purchasing it or completion of its construction, you will be able to avail exemptions. However, in such a case, you have to seek exemptions on the interest paid on the principal amount before your purchase or completion of construction. You will be eligible for deductions in 5 equal instalments. This clause is not applicable on the renovation or reconstruction of a house.
- If you have opted for a loan for the purpose of reconstruction or renovation, you will not be able to avail tax exemptions till the completion of the renovation or reconstruction.

Exemptions under Section 24

The following are the exemptions under Section 24:

If you do not reside in the house for which you have taken a loan, you will be eligible to exemption on your entire interest. There is no upper limit for the exemption.
If you do not reside in the house for which you have taken a loan because you stay in another city as a result of your occupation or business, or you occupy another property you own or have rented in the same city where you are employed, you are eligible to claim exemption on your interest of no more than INR 2 lakh.
The purchase or construction of the house has to be completed within 3 years of opting for the loan for you to be able to claim the maximum deduction of INR 2 lakh on the interest amount. In case the purchase or construction of the house takes more than 3 years to get completed, you will only be eligible for a deduction of INR 30,000 on your interest amount.
Brokerage or commission services that help in arranging loans and tenants do not attract deductions.
You should ask for an interest certificate for the loan that you have opted for, so that you are able to submit it as proof for the verification process during the calculation of tax deductions.

Tax Deductions under Section 80C

Deductions under this section can be claimed when you have bought a new house. You can claim deductions on stamp duty and registration charges, which usually amounts to approximately 10% of the cost at which you have purchased the house. The maximum deduction that you can avail under 80C is INR 1.5 lakhs. You are also eligible for deductions on your expenditure incurred during the transfer of newly-constructed residential property.

Capital Gains Tax on house property

This is the tax payable on profit received from the sale of your house property. However, you can steer clear of paying tax on the profit by investing this amount on the purchase of another house property within 2 years of sale. You can also utilise this profit in the construction of a new house.

Guidelines for calculating income from house property

Awareness about the following provisions will further help you in calculating your income from house property.

The difference between the municipal taxes paid by you on the house property and the gross annual value of the house is termed as Net Annual Value of the house.
In case you have not been able to find tenants for a certain part of the financial year, only the rent that you have received for the months in which you have had tenants will be considered as your annual income form the house property. This income, after deducting the municipal tax and the standard deduction of 30%, will be taxable.
If you do not have tenants occupying the property for which you are paying municipal taxes, you can compensate your losses from sources like your rent from another house property or salary for the same financial year. The loss incurred during a particular financial year can be carried forward to a maximum of 8 years.

Guidelines for online payment of Property Tax

You can pay your Property Tax online through the state or municipal website by filling in your Property Tax Number or Revenue Survey Number or Khatha Number. Here are some guidelines that you need to know if you prefer paying your Property Tax online.

If there is a balance after you have paid your tax in advance after adjusting the dues from the previous year(s), if any, you will be paid back through DD or cheque post verification.
Property tax for a particular financial year will include the pending amount or remaining dues from previous year(s), if any.
If you opt to pay the property return for the existing financial year in two instalments, you can use the same form for the second instalment as well.
If you opt to pay the entire tax amount in one instalment, you will be eligible for a 5% rebate.
Payment for the arrears for the previous year(s) can be made only after the challan for each of the previous year(s) have been generated.
Receipt for payment through cash and DD is generated instantly, while receipt for payment through cheque will be generated only after the cheque amount has been realised.
An interest of 2% per month is calculated automatically on the tax amount for the defaulted period.

How to Pay Property Tax Online?

The online platform of Property Tax has made it convenient for people to make their payments, irrespective of the time zone or location. A majority of municipalities in India offer this service, making the process hassle-free.

If you prefer paying your tax online, here are the steps you need to follow. These are the standard steps for online payment of Property Tax and may be different for certain city or town corporations.

Click on the ‘Property Tax’ option on the city or municipality website.
Select the correct form from the available category that is appropriate for your house property. This form is a guide to keep you updated on changes that may have been implemented on the category of propriety that is appropriate for you.
Select the year of assessment, that is, the year for which you have to pay your taxes. This includes the tax for the current financial year as well as the impending dues from the previous year(s), if any.
Fill in your Property Identification Number/Property Tax Number/Revenue Survey Number/Khatha Number, and other essential details like name of owner, property type, relevant locality, etc.
Select your preferred payment gateway, that is, internet banking/Debit Card/Credit Card to complete making the payment.

FAQs on Property Tax

Are online tax payments functional for all municipal corporations?

Online payment of Property tax is a relatively new concept in India. Though not every municipal corporation offers this convenience yet, they are gradually embracing digital payments. You need to clarify with your concerned municipal corporation on whether you can avail this facility.

Are there any provisions to claim exemptions on Property Tax?

Exemptions on Property Tax can be claimed basis the following factors:

Age, that is, in case you are a super senior citizen
Your net income
Location – constructed on famine zone or such similar areas
Type of property
Your history of public service

Property Tax cannot be levied on a vacant plot of land. If you own a vacant property, you have to get in touch with the municipal corporation or relevant administrative authority of the concerned locality.

For a house property that has been rented out, who should be paying the Property Tax?

In India, the owner of the property is responsible for paying Property Tax for a house property that he has rented out.

I have been quoted different Property Taxes for the two house properties that I own. How is this possible?

Property Tax varies from state to state based on the area of your property and other factors. The Property Tax that you pay for each of your property is decided by the municipal corporation or any other relevant local administrative body of each locality.