Human life revolves around fulfilling a few basic needs, needs without which our lives could come to an abrupt end. We spend most our lives trying to further our cause, working hard to reach certain goals. Perhaps the three most basic needs we have are Food, clothing and shelter, not necessarily in the same order. A life without these three constituents would be incomplete and the struggles to satisfy these needs are evident in our day to day life. A home is what everyone wishes to acquire someday, with owning a property being the ultimate goal for millions across the globe.
In a country like India, owning property is akin to owning a goldmine, with properties being considered the safest and smartest form of investment today. A property provides us with a sense of security, a place where an individual can be true to himself/herself, a place which symbolises a level of achievement.
What is Property Tax?
Taxes are the primary source of income for a government, with the taxes earned dictating the resources available to citizens. Every property is an asset which is taxable and the property tax is an annual amount paid by a property/land owner to the government. This tax could be paid either to the local state government or Municipal Corporation, depending on government policies.
The word “property” in this context refers to all tangible real estate under the ownership of an individual and includes houses, office buildings and premises rented to third parties. Property tax, as a concept has been around for centuries and is acknowledged across the globe, with records of farmers and peasants paying tax on their properties even in the middle ages.
Property Tax in India:
Brief History:
Property tax has a deep rooted history in India, finding a mention in epics like Manu Smriti and Arthasastra, which spoke about different tax measures in place at that time. Kings would levy a small tax on farmers and landowners, which would be used to enhance the treasury of a kingdom. The advent of the British brought in a more streamlined process, with land revenue forming a major chunk of the British treasury. They devised a system of centralization with respect to land tax, appointing individuals to collect tax on behalf of the crown. This gave birth to tax collectors and a formal tax collection system in the country.
Types of Property:
Property, in India is classified into four categories, which help the government estimate tax based on certain criteria. The different property divisions in the country are mentioned below.
- Land – in its most basic form, without any construction or improvement.
- Improvements made to land – this includes immovable manmade creations like buildings and godowns.
- Personal property – This includes movable man made objects like cranes, cars or buses.
- Intangible property
Present State of Property Tax:
Property tax in India is to be paid on “real property”, which includes land and improvements on land, with the government appraising the monetary value of each such property and assessing the tax in proportion to its value. It is the duty of the municipality of a particular area to do this assessment and determine the property tax, which can be paid either on an annual or semi-annual basis. This tax amount is used to develop local amenities including road repairs, maintenance of parks and public schools, etc. Property tax varies from location to location and can be different in different cities and municipalities.
How to Pay Property Tax Online:
The internet has made a huge impact on how the world functions, opening new doors and simplifying lives. Paying property tax was considered a huge hassle in the past, but those days are long gone, thanks to the option of paying property tax online. Most municipal corporations provide the option of paying property tax online, streamlining the process and saving valuable time.
Individuals wishing to pay their Property Tax Online need to follow the following steps:
- Log onto the official website of their municipality/city corporation.
- Choose the tab indicating property tax and navigate to the payment option.
- Choose the right form (either 4 or 5), based on the category under which an individual’s property falls. These forms are used to determine if any changes have been made to a property in question.
- Choose the assessment year. This is the year for which property tax needs to be calculated and paid. Most corporations provide an option to clear backlogs in property tax payment.
- Individuals will then be required to fill in their property identification number and any other relevant document pertaining to their property (zone under which it falls, property type, etc.) including the owner’s name.
- Once all relevant information has been entered, individuals can choose the mode of payment, which could be credit/debit cards or internet banking.
- Once payment is made individuals can take a print out of the challan for their reference.
Note: These are the basic steps involved in paying property tax online and could vary depending on the city/town corporation.
Property Tax Calculation:
Property tax in India depends on the location of a property in question, with taxes varying from state to state. Different civic corporations use different methods to calculate tax, but the general overview of such calculations remains the same and is explained below.
An assessment of the property is first carried out by determining the area it is in, occupancy status (whether it is self-occupied or rented out), type of property (residential, commercial or land), amenities provided (car park, rainwater harvesting, store, etc.), year of construction, type of construction (multi-storied/ single floor/ pukka or kutcha structure, etc.), Floor space index and carpeted square area of the property.
Once these parameters are determined the civic agency can use a formula it deems fit to calculate tax. Different agencies use different formula.
The formula used by Mumbai Municipal Corporation is given below:
Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor.
The tax on a property will vary according to the factors mentioned above and can be easily computed online, through the official website of the municipal corporation concerned.
Interest on Property Tax:
Late payments towards property tax can attract a fine, generally equivalent to a certain percentage of the amount due. This interest varies from state to state, with some states choosing to waive off such interest and others charging rates from 5% to 20%, depending on their individual policies.
For Example:
Some states waived off penalties on property tax while Bangalore decided to slash interest for late payments from 20% to 10%, in a bid to get more people to pay their dues.
Section 80C and Property Tax:
Individuals who purchase a new house can claim deductions under section 80c of the Income Tax Act. Under this clause, deductions can be claimed for stamp duty and registration charges, which could add up to around 10% of the total cost of a house. Deductions claimed under this section are subject to the condition that they do not exceed Rs 1.5 lakh.
Individuals can also claim a deduction towards any other expense during the process of transfer of property. Homeowners should keep in mind that this is applicable only for new residential properties.
Capital Gains Tax on Property:
Capital gains tax refers to the tax levied on the profit which is the outcome of a property sale. Capital gains tax can be a major source of wealth drain if not handled smartly. A simple way to handle this is to purchase a new house from the proceeds of a property sale, keeping in mind that such property should be purchased within two years of sale. Proceeds from a property sale can also be used to construct a house, ensuring that capital gains tax on property doesn’t become too taxing.