Buying a property for residential or commercial use involves a specific set of charges and tax liabilities. While some - like stamp duty and registration charges - are one-time payments, property tax is a recurring annual liability. It is simply the cost of owning property.
This tax is payable to the municipality of your area and is based on your property’s value. So, if you own a residential, rented, or commercial property, you are liable to pay property tax. To help you understand the concept better, we cover property tax types and calculation methods in the following sections.
The meaning of property tax is pretty straightforward. It is the annual tax levied by the government on property owners. Local government bodies like panchayats and municipal corporations collect property taxes. Taxpayers can choose to clear these dues annually or semi-annually.
The applicable tax is based on the appraisal value of the property and the tax rates issued by the local body in charge of taxation. Thus, property tax rates vary among states, cities, and even municipal zones within the same city.
Since property tax is levied on all types of properties, tax rates also vary depending on the type of property in question. To make assessment more accessible, the Indian Government has classified properties into the following property tax types:
This category includes man-made movable possessions like cars, buses, trucks, etc.
This category includes land without any construction or modifications.
Constructions made on the land, like buildings or godowns, are included in this type.
Possessions without a physical basis -like patents or copyrights- fall into the intangible property category.
So as you know, property tax is only payable on tangible properties. Exemptions also include vacant lands without adjacent constructions.
Now that you know what property tax is, here’s a list of factors used to calculate these tax dues:
The following formula is used to determine your tax burden:
Property Tax = Base Value x Building Type x Floor Factor x Age Factor x Built-Up Area x Category of Use
While this is the basic formula for property tax calculations, municipalities can use one of the following methods to calculate property tax values:
Under this system, property tax is calculated as a percentage of the property's current market value. Local authorities use the location of the property to derive its market value. Rates are annually revised to keep calculations up-to-date.
Under the UAS, the per unit price of the property’s built-up area helps derive your tax liabilities. The price is based on the expected returns from the property vis-a-vis its location, usage, and land price. When multiplied by the built-up area, this value determines the final tax due on the property.
Also known as the Rateable Value System, this system uses your property's annual rental value to determine your tax burdens. In other words, the property's rental potential is critical to calculating tax dues under this system. Municipalities determine this value based on the property's location, condition, and size and the amenities it offers.
While you now know how to calculate property tax, paying your dues on time won’t be a hassle. To make payments simpler, most municipalities around India allow online property tax payments through their websites. Here, you have to fill out the online application form, input your property identification number and upload relevant documents to make the payment.
You cannot enjoy concessional property tax rates unless you’re a senior citizen. So, if you still wish to save on your total annual tax liabilities, you can download and install the Fi app. With Ask.Fi, you can review your spending patterns and see your money grow. With the 360-degree view of your expenses, you can filter your spending by category and time.
Municipality bodies use property tax revenues to maintain the locality and ensure the upkeep of the locality. These funds are used to maintain civic amenities like parks, street lamps, footpaths, sewer systems, water supply, etc.
The Municipal Corporation of Greater Mumbai (MCGM) calculates property tax in Mumbai using the CVS method. So, the tax payable will be a percentage of your property’s current market value.
It is the annual tax property owners pay to the local government. The municipality determines the tax rate based on the value of the property in question.