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Property Tax in India: Calculation, Deduction.

Property Tax is the tax collected from landowners upon the property they own, by the local state Government or Municipal Corporation, as per the government’s policies. The value of the property decides the value of the tax. The value of the property is basically based on its location, occupancy status, area covered and structure quality. The money collected from property tax is utilized by the Government for repairing and maintaining the public infrastructures.

Defining Property Tax in India

Property Tax in India is also called House Tax. Even though the State Government has the authority to collect the tax, this power is usually delegated to the municipality. However, the tax rate, valuation method, and collection procedure are decided solely by the governing authority.

Tax is determined on the basis of Annual Rental Value (ARV). The properties which are not rented out but are occupied by the owner for personal use are assessed as per its cost. The figure that is obtained is converted in ARV with the Percentage of cost applied at 6%. Vacant lands and properties that come under the ambit of Central Government are exempted from Property Taxation. Property tax is also exempted on properties which are engaged in foreign missions.

Type of Properties in India

Properties in India are classified into four categories. These categories facilitate the government in tax estimation of the property under certain criteria.

The four categories are as follows

  • Land: The basic property without any construction or improvement.
  • Improvements made to the land: This constitutes construction of immovable structures like buildings and godowns.
  • Personal Property: This refers to man-made objects such as cars, bikes, buses etc.
  • Intangible Property: Assets of the property that are not physical in nature.

The Current State of Property Tax in India

Property Tax in India is imposed on the property; inclusive of land and improvements on the land. The government appraises the monetary value of the properties and assesses the tax rate accordingly. It is the duty of the municipality, however, to determine the value of the property upon which tax is to be paid either annually or semi-annually. The value of the property as determined by municipality varies from location to location and it is different in different cities.

Calculating Property Tax

Since property taxes in India are based on the location of the property, therefore, the tax rates vary from one state to another. Though different local governing bodies use different methods to calculate property tax, the general overview of the calculation remains the same.

A property is assessed firstly on the following basis

  • The location of the property.
  • Occupancy status (which means, whether the property is rented out or self-occupied by the owner).
  • What type of property it is (basic, residential or commercial land).
  • Facilities provided (parking space, rainwater harvesting etc.).
  • The year in which the property was constructed.
  • Nature of the construction; whether it’s a concrete or non-concrete, single floor or multi-storied, carpeted etc.).
  • The sq. area of the property and floor space index.

After all the above-given details are determined, the authority responsible can calculate the tax by whichever method they deem fit. Here, different state authorities use different formulae.

Section 80C and Property Tax

Individuals who have purchased a new property can claim a deduction of up to Rupees 1.5 Lakhs under Section 80C. As per this clause, the deduction can be claimed on registration charges and stamp duty which account for 10% of the total cost of the property. This scheme is only applicable to the sale of the new residential property.

Tax Deductions on Income from Property

Under Section 24, deductions on income from house property are applicable in the following cases

  • The amount received as rent from a tenant is considered as a part of your yearly income.
  • If you own more than one house, then apart from the house you are living in, the Net Annual Value of the remaining houses are considered as your income.
  • The income from the house property will be considered as NIL if you own only one house and you are living in it.

Any income earned from rent or annual value of the property will be subjected to taxation, after the deduction has been made on it, under Section 24.

Deductions under Section 24

Section 24 is further sub-divided into two sections

  • Standard deduction: Every taxpayer can claim this deduction. Here, a sum equivalent to 30% of the total annual value is excluded from the tax limit. This deduction is not available in case you are residing in the only house you own.
  • Interest on loan: The amount paid as interest towards the home loan taken for the purchase, construction or renovation of the house can be exempted from taxation. The sub-clauses in this category are as follows:
    • Deduction of up to Rupees 2 Lakhs can be claimed on the loan taken for a self-occupied property.
    • If you have taken a loan for the purchase or construction of a property you can claim a deduction on the interest paid. The claim must be filed before the purchase or construction of the property in five installments, dating from the year the property is purchased to the year the construction gets completed.
    • You cannot claim tax exemption on the loan taken for renovation or reconstruction until the work is completed.

    To claim this deduction, you need to compute the interest separately from the principal repayment, on the loan that you took from a bank or financial institution. You can get an exemption for the complete annual interest amount irrespective of whether the payments are made to the lender.

Exceptions under Section 24

  • You can claim an exemption for the whole interest amount without any upper limit if the house is not occupied by you.
  • Tax deduction of up to Rupees 2 Lakhs can be claimed on the interest amount if you do not reside in your property and are living in some other city or renting another house/apartment.
  • No deduction is available for brokerage or commission for arranging tenant or loan.
  • You will be able to claim only Rupees 30,000 instead of Rupees 2 Lakhs if the purchase or construction of the house is not completed in 3 years from the time the loan was taken.
  • You must possess the interest certificate of the loan taken.

How to Pay Property Tax Online

Paying Property Tax has been made easier by the government by providing the scope of online payments.

To pay Property Tax online you need to follow the given steps

  • Log-in to the official website of your respective municipality.
  • Click on the tab titled ‘Property Tax’ and you will be directed towards the payment option.
  • Based on the category under which your property falls (likely to be Form 4 or 5) select the form which will help you determine the changes done in a property.
  • Choose the Assessment Year.
  • Individuals will be required to fill in the details including property identification number, owner’s name and provide any other relevant documents with regards to their property.
  • Once the details are filled, you can make the payment through credit, debit card or via internet banking.
  • Once the payment is confirmed, you can take the print out of the challan for the reference purposes.

Some of these steps may vary from one state to another.

Rate of Interest on Property Tax

Late payment of taxes is liable to a penalty. It can incur fine which is equivalent to a certain percentage of the amount payable. Since the property tax is determined by the municipality, the tax rate differs from state to state. The charging rates can be anywhere between 5-20%, depending on the individual’s policies.

Key Points to Remember while paying Property Tax Online

If you want to make the payment of Property taxes online, you need to furnish your Property Tax number, Khatha number or revenue survey number.

Following are the points that you should consider while filing property taxes online

  • If the Property tax returns for the previous years are pending then you should file the returns for the current year along with returns and dues of the previous years.
  • Additional reductions can be claimed only once during the block period from 2016-17 to 2018-19. It cannot be availed for the year 2017-18 and 2018-19.
  • The returns for the current year should be filed based on the revised returns if the revised returns are filed for any year.
  • If the advance tax has been paid and there is still a certain amount due after adjusting the tax for the previous year then it must be paid by cheque or Demand Draft after the due verification.
  • In case the amount is paid in two installments, the same form is used for both deposits.
  • If the full payment is done in one installment, you can claim a rebate of 5% on it.
  • If you have paid the property tax once then you can easily make payments towards it by using your SAS (Subordinate Account Service) Base Application Number or PID Number (Property Identification). First-time taxpayers must wait a while.
  • In the case of a defaulter, the system automatically calculates the interest of 2% per month for the defaulted period.
  • If the amount is paid via cash or DD, the acknowledgment receipt is created instantaneously. But in the case of payments via cheque, the receipts are generated after the clearance of the cheque.

In the News

  • All India ITR launches Income tax e-filing Mobile App for Android and IOS

    Daily Excelsior News: File your income tax returns, process rent receipts, calculate taxable income and HRA exemptions at the touch of your smartphone screen with All India ITR’s new mobile app. Meeting tax compliance has never been easier.

    13th June 2017

    Daily Excelsior News

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