Property Tax Consultants Services inIndia

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.

Brief History of Property Tax in India:

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 manmade 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.

For income tax purposes in India, property is considered as a source of income and hence, tax is levied on that. Properties usually include building, flat, shop etc. as well as the land appurtenant to the building. Under the Income Tax Act, incomes from the properties are regarded as one of the heads of income. The amount of tax is calculated on the value of the property being taxed.

It is the local municipality authority that levies property tax for the maintenance of basic civic services in the city. Unlike the countries like UK where the occupier is liable to pay the property tax, it is the liability of the property owner to pay the property tax in India to the concerned municipalities.

India Property tax is levied on the real estate which consist of buildings or land attached to the buildings. Vacant plots of land without any adjoining building are not liable to be taxed under this head. It will rather be taxed as income from other sources. Following are the kinds of properties that are liable to be taxed under property tax India:

  • Residential house (self-occupied or let out)
  • Office Building
  • Factory Building
  • Godowns
  • Flats
  • Shops

Calculating Property Tax India

Property tax in India is calculated on the basis of ‘Annual Value’. There can be different Annual Values for self-occupied and let out properties.

Property Tax Services include:

  • Valuation appeals
  • Uniformity and general consulting studies
  • Litigation support
  • Exemptions
  • Compliance

Annual Value for Let out Property: In case of let out property, the annual value would be equal to the maximum of the following:

  • Municipal Valuation
  • Rent Received
  • Fair Rent as determined by the Income Tax department
  • Deductions: Deductions are allowed on the interest on the loan to build, buy or repair the property. A deduction of 30% of the net value is allowed for the repair and maintenance of the property.

Annual Value for Self-occupied Property

For self-occupied property, the annual value is taken as zero, provided that the property is fully used for own residential stay. It the owner doesn't occupy the property, nor he lets it out, the annual value of the property would be zero again. If the property is given on rent for a few months, the annual value will be calculated proportionately.

Deductions: Owners are entitled to get deductions in the form of interest on loan taken for the construction or purchase of the property. The interest payable is subject to a max of Rs. 1, 50,000 (loan taken on or after April 1, 1999) and Rs. 30,000 (loan taken before April 1, 1999)