If you are going to buy a home or have already made an investment, you must be aware that the government levies various taxes at different times. You must have heard the term “property tax” and wondered what is property tax in India? Read on to understand.
What is Property Tax?
The yearly sum paid by a property owner to the local government or municipal corporation in their respective regions is known as property tax. All tangible real estate property, residences, office buildings, and rented properties attract a property tax.
Property tax can be paid yearly or semi-annually, and it varies for different cities, states, and even different regions within a state. However, the state government establishes the basic rates that can undergo assessment.
How to Pay Property Tax Online?
Now, that we know what is property tax in India, here are the steps that can help you pay property tax online:
- Open the municipal/state website
- Select Citizen services
- Select property tax and mention property ID
- Check the name and address and pay via net banking or credit card.
Your property tax can be paid at the municipal corporation office in your region, or at specific banks in affiliation with the Municipality. To identify your property, you may need to supply the assessment tax number.
Now, you must be wondering what is assessment number in property tax? Well, the assessment number refers to the value assigned to a property for property tax payment. It is imperative if you wish to pay your property tax online.
- Property tax is the yearly payment to the government on any “real property” you own.
- Taxes on ready-to-move-in properties are significantly cheaper than those on under-construction properties.
- Besides stamp duty, registration fees, and GST on property tax, 1% of TDS must be paid.
Interest on Property Tax
What is property tax in India and what is the interest on it are some common questions that need an answer. Late payments towards property tax can lead to fine. This fine is usually equivalent to a certain percentage of the due amount.
This interest varies from one state to another, wherein some states are looking to waive off this interest and some others are changing the interest rate from 5 per cent to 20 per cent, depending on the individual policies.
How is Property Tax Calculated?
A question that comes to mind after understanding what is property tax is its calculation. Property tax in India is levied as per the location of the property, with rates varying from state to state.
Property tax calculation is done by different municipalities in different ways, but the overall outline of such computation stays the same in every state.
Different agencies employ various formulas. The civic agencies responsible to calculate the tax can do so using any formula they find suitable once all the potential aspects’ assessment is done.
Different Methods of Calculating Property Tax
Municipalities use one of the three distinct methods to determine property taxes, and they are:
- Capital Value System – As per this method, the tax imposition is done as a proportion of the property’s market value. The government determines the market value of the property based on its location. Every year, the market value undergoes review.
- Unit Area Value System – Under this system, the tax value is based on the per-unit price of the built-up area of the property.
- This valuation is done by the estimation of returns on the property with respect to the place, utilization, and land price.
- This valuation then undergoes adjustment by the property’s built-up area to determine the tax valuation.
- Annual Rental Value System – With this system, the tax calculation is based on the rental value obtained from the property in a given year. It does not have to be the actual income from the property.
- The municipal authority, on the other hand, determines the rent valuation, which is based on the location, size, and condition of the property. The proximity of the property to landmarks and other key facilities is also taken into account at the time of its valuation.
There are a few municipalities that provide an exemption from paying property taxes depending on characteristics such as Kind of property, age, geography, Individual net income, and more.
It is important to properly verify with the local authorities for such information and to appraise the property’s worth with diligence.
Tax Deductions against Income from Property
So, is it important to simply understand what is property tax or is there more to it? Well, there is certainly more to the question ‘what is property tax?’ than a simple definition. Read on to understand.
- Municipal tax- Municipal tax is the amount paid annually to the municipal corporation of the area.
- Municipal taxes are deducted from the gross yearly value in order to derive the net yearly property value.
- Standard deduction- This type of deduction is done irrespective of the actual property expenditure be it insurance, water supply, electricity or even repairs.
- For a self-occupied type of house property since the annual value is nil, the standard deduction on such a property is also zero.
- Deduction of interest on a home loan- Homeowners can choose to claim a deduction of up to Rs 2 Lakhs on the home loan interest if the owner of the property or his family live in the house property. This same treatment is also applicable if the house is vacant.
Why Do We Have to Pay Property Tax?
It is now quite clear as to what is property tax, but why is it so important to pay property tax? Property tax is also known as a house or municipal tax and includes the collection, imposition, and assessment of property owners by a specific municipal authority.
This tax helps with the upkeep and maintenance of local amenities such as footpaths, sewage systems, roads, streetlights, and parks for the convenience of the civilians.
Importance of Paying Property Tax
Property taxes are a significant part of the ownership of the home. Homeowners can either have taxes added to mortgage statements or they can choose to pay them in a separate way. Both ways, it is imperative to pay property tax.
Governments assess property tax based on value and location. These taxes paid by the homeowners help fulfil vital services like highway construction and other important uses which differ with different jurisdictions.
Exemptions on Property Tax
House property owners can avail of exemption from property tax u/s 24. The exemptions can be as follows:
- If property owners do not live in the house they have taken a loan for they will be exempt from paying the entire interest rate with no fixed upper limit.
- If the house owners do not reside in a property as they are living in a different city due to business or employment and they have rented or purchased a house, they are eligible to claim exemption on the rate of interest but only up to Rs 2 Lakhs.
- In case of failure to complete the construction in three years, they can only claim an exemption up to Rs 30,000.
- There are no deductions on commissions or brokerage for the purpose of arranging tenants or loans for the owners of a house.
- House owners need to complete the construction within three years of taking the loan to claim the maximum exemption of Rs. 2 lakh.
- Owners of the house need to complete the construction within a time span of 3 years after taking a loan in order to claim the maximum exemption of Rs 2 Lakhs.
Penalty for Non-payment of Property Tax
You have to pay a late payment penalty for paying your property tax after the due date. This penalty can be as high as 5-20 per cent of the due amount. This amount can be quite a lot if you own a large-scale property or a property in a posh location.
Property Tax vs GST: Know the Differences
- GST is the tax on the sale of goods. Property tax, on the other hand, is the annual payment on property you own.
- GST collection is done by both state and central governments, whereas property tax collection is only done by the former.
- GST is a type of commercial tax. Property tax, however, is levied on the ownership of both residential and commercial properties.
Property tax is a mandatory direct tax payable to the government on the property you own. It is set by the government and can either be the local or the municipality government.
In case of delay or default of payment of the property tax, you will be levied a penalty for delay or failure of the payment. You will have to pay interest on the amount owed as the penalty charges. Every state has a different penalty for default. For example, in Delhi, you will be charged 1% every month on the tax amount by the MCD.
Taxes are the primary income of the government. To maintain and establish new infrastructure and facilities for the citizens and also for the proper functioning of the government. Citizens pay some amount to the government as a tax. In the same way, property tax is collected to finance the cost of public expenditure and renovations and maintenance.
If you own only one house, and you live in it, you will be exempted from paying any property taxes but if you own more than one house, and you are earning rent from there, in that case, you will be liable to pay the taxes.
There are a few exemptions such as Kind of property, age, geography, and individual net income. Apart from these aspects, everybody is liable to pay their property taxes without any delay.
Ready-to-move-in homes do not meet the threshold for GST taxes because there is no sale of goods or services included, only stamp duty and registration fees are paid on them.
Tax deductions u/s 80C come into the picture in cases of a newly purchased house. The owners of the house can claim deductions on registration charges and stamp duty which is usually up to 10 per cent of the amount at which the property (House) was purchased initially. The highest amount that can be deducted u/s 80C is Rs 1.5 Lakhs.
Agricultural land is not a capital asset so there is no tax applicable on the sale of this type of land.
Property tax needs to be paid on an annual basis and late payments can attract a fine in the form of interest rate on the due amount, which can range up to 2 per cent a month.
Also Read: What is Stamp Duty?