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Property Tax- Methods, Payment and Deduction

For all the maintenance and other charges borne by the municipality, every land owner in a particular jurisdiction has to pay a certain amount as tax. This is charged by the municipality through state government. There are many amenities provided by a municipality for which funds are collected from land owners

Points covered in this article are:

1. What is Property Tax?

2. Who is liable to pay property tax?

3. How to pay property tax?

4. Methods of calculating property tax

5. Interest on late payment of property tax

6. Different Property Tax in different places

7. Tax benefits on house property

1. What is Property Tax?

Property tax is any tax you have to pay on real estate within any municipal limits. This is basically collected by municipality through state government for all the facilities such as sewage system, maintenance of roads, drainage system etc. These are primary source of income to the government to maintain infrastructure and provide various services to the people

2. Who is liable to pay Property Tax?

Based on the value of property municipal authority levies tax on land owners for actual land and improvements of land. The method of valuation of land and calculation of tax varies from one municipality to other. The tax calculated can be paid on annual or semi-annual basis

3. How to pay Property Tax?

Earlier property tax could be filed only physically so the process was much tedious but, in some areas, online payment system has been introduced. Due to introduction of online payment method the process has become simpler. Every municipality has a different website to pay from. For example, Bangalore Municipality tax is paid through BBMP website. Whereas some municipalities still collect tax through manual filing.

4. Methods of calculating Property Tax

Different municipalities adopt different method of calculating property tax

a. Unit Area Value system

In this method prices per unit value of built-up area is fixed. Based on those fixed prices returns from property are calculated. Many municipalities such as Bangalore, Kolkata, Patna, Ahmedabad use Unit Area Value system

b. Annual Rental value

This system of calculating property tax is based on the annual rent value of a property. The rent value is not the actual rent collected from the property but the capacity to collect tax. If a property can gain rent of ₹50,000 and actual rent gained is only ₹40,000 because part of the property was not let out tax shall be levied on full capacity of the property to collect tax i.e., ₹50,000. This method is adopted by few municipalities such as Chennai and Hyderabad

c. Capital Value System

This is the method where market value of a property is taken into consideration to calculate property tax. Market value for calculation is fixed by the government and is revised annually. The market price mainly depends on the location where the property is located and type of the property

5. Interest on late payment of property tax

Property Tax itself is very high in certain cases. Penalty on late payment can also vary from one municipality to other. The rate of penalty can vary from 5% to 20% of due amount. It is also based on which method of computing tax is used, location where the property is located etc.

6. Different Property Tax in different places

Rate of property tax not only varies across different states but also varies within different municipalities of same state. As mentioned above the tax levied is on the basis of various factors such as locality, demand for the property, rental value etc. Because of all the fluctuations in market value of property, tax charged is different

7. Tax benefits on house property

Under Income Tax Act, 1961 certain deductions and exemptions are given to house properties i.e., Land, building, residential house etc.

a. Deduction under section 24

● Standard deduction of 30% of net value of the house is allowed. This deduction is only allowed where the taxpayer owns one house

● Interest on loan taken for purchase, renovation or construction of a house property is exempt from tax payment.

● The amount need not be actually paid to claim exemption for complete annual interest

● Payment of property tax is allowed as deduction from the Gross annual value of such property.

b. Deduction under 80C

Deduction under section 80C can be claimed when a new house has been purchased. The deduction availed shall be only on stamp duty charges and registration charges which shall be up to 10% of cost of the house. The exemption claimed shall not be more than ₹150,000. All the deduction is allowed only in case of ‘new residential property’

Frequently Asked Questions

1. Who charges property tax in India?

Property tax is charged by local authorities i.e., municipality under the administration of state government

2. Is there any concession allowed on property tax to taxpayers?

A taxpayer may get a concession based on age, net income of the taxpayer, location of property, Gender etc. Taxpayer should contact local administrators to check the exemptions allowed

3. Can property tax be paid online

It depends on the municipality limits where the property is located. Some of the municipalities have adopted online payment system. Bengaluru, New Delhi, Kolkata has online payment facility

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