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Everything to know about Property Tax in India

January 12, 2021

Property Tax

House/Property Tax in India

  • Property tax is a fee that property owners have to pay to the government.
  • The tax is collected by local government agencies or state municipal corporations.
  • Property tax applies to all types of real estate, whether residential or commercial, whether owned or leased.
  • Property tax can be paid both online and offline
  • Delinquent property tax payments can earn interest.

What is the Property Tax?

Property tax is an annual fee that the government imposes on owners of various properties, such as residential real estate and office space, that are owned or leased to others. Property tax can be collected by the local government or municipal institution authorized to collect it in a particular country. Property tax, like all taxes, is collected by the authorities to finance development and infrastructure activities, such as roads, highways, sewage, etc.

How Property Tax is Calculated?

Property tax is not standardized across the country and therefore varies across locations, cities, and states. Therefore, different tax collection agencies have different methods of determining property tax. However, the general guide for calculating property tax relies on the following formula:

Property Tax = Base Value * Built Area * Age of Property * Type of Property / Building * Use Category * Floor Factor

Hence, factors such as the fundamental value of the land; Load factors whether owned or leased; Type of property, whether residential or commercial; The age of the property or the year of construction; Building type whether multi-story, single-story, etc. Determines property tax in various states and locations. Based on these factors, the property tax that you will have to pay can be calculated using the online property tax calculators, which are available on the online portal for municipal corporations in a reputable state.

Property Tax

In addition, the property tax is calculated in various ways. These are listed below:

  • Capital Value Systems: Under the capital value system, property tax is calculated based on the market value of the property, which is decided by the government based on where the property is located. A percentage of the market value is estimated as property tax that the owner has to pay
  • Unit Area Value System: The unit area value system determines property tax based on the unit price for the built-up area of the entire property. The price of the property, in this case, is determined based on factors such as the price of the land, the use, and the location of the property. When estimating the price, it is multiplied by the built-up area covered by the property.
  • Annual Rental Value System: The annual rental value system is also called the face value system. Under this method, property tax is collected based on the rental value of the property that is collected each year. The rent, in this case, is not the actual amount the owner will charge; In fact, it is the rent that the municipal corporation estimates based on the location and size of the property. Apart from that, the distance from the property to the symbolic services and places is also a major factor in deciding to rent the property.

Methods to Pay House Tax

Home tax or property tax can be paid either online or offline, depending on the convenience of the owner.

Also Read: Commercial property documents 

Pay Property Tax Online

One can pay property tax online by following the below-mentioned steps:

  • Log in to the official portal of your city / municipal company.
  • Choose the “property tax” option and go to the payment option.
  • Also, fill out the correct property tax form, which is Form 4 or Form 5, depending on the property type and class.
  • When completing the form, choose the assessment year, which is the year in which the tax will be calculated and paid.
  • Continue to fill out the property identification number, title documents, and other required information, such as the owner’s name.
  • After completing all the required information, continue to choose the method of payment, from the available options, such as debit/credit cards or net banking.
  • On successful payment, a challan is created on the screen. Take a created challan print for future reference

Pay House Tax Offline

To file your property tax offline, you must visit the municipal corporation office in your city. In addition, the property tax may be paid at designated bank branches. Offline property tax payments can be made with cash or a card.

Property Tax

What are the Types of Property?

The term “ownership” is a broader concept that includes four types. Classification of the property is listed into four types below:

  • Land: Land is the most common type of property that people own in the country. The terrain, in this case, however, is the primary terrain without any construction or improvement on it.
  • Improvements made to the land: The improvement made in the land is another type of property that people own according to real estate investment. This includes terrain improvements such as building construction or removal.
  • Personal property: Personal property includes man-made objects. This includes vehicle ownership such as tow trucks, cars, trucks, or buses.
  • Intangible property: Intangible property includes ownership of “untouchable” things such as patents and royalties.

Property Tax Interest Rate

Property tax interest is collected when a person does not pay the property tax on time. The fine imposed on property tax is equal to a certain percentage of the amount of taxes owed. Also, the property tax imposed on a property owner varies from state to state. However, in general, the property tax rate ranges between 5% and 20%. Sometimes various states and municipal companies have a tendency to waive the property tax rate in certain cases.

How to Calculate Income from House Property?

Homeownership income can be calculated based on the following points:

  • It should be noted that only the annual net value of a residential property is subject to tax. The annual net worth is determined by deducting city taxes from the annual total value of the home.
  • In the event that the house is not occupied during any financial year, the rent received for a certain period is considered income only, and it is not calculated for a period of twelve months or the entire year.
  • If the house is vacant, but the owner still pays the property tax, this loan can be offset by income received from other sources. In the event that one cannot look at the same in the current fiscal year, these expenses can be carried over within the next eight years.

Property Tax

Income Tax Exemption Types Under Section 24

Section 24 of the Income Tax Act is called Home Ownership Income Deduction. The income in this case is obtained in three scenarios:

  • The rent received when you rent the home is considered income.
  • In the event that a person owns more than one house, the annual net worth of the vacant house is calculated as income.
  • In the event that a person owns and occupies only one house, the income is considered null. However, rent acquired on additional homes will be eligible for deduction under Section 24 of the Income Tax Act.
  • Based on these factors, one can avail exemptions on the income from property, as per section 24 of the income tax act. Section 24 provides two kinds of tax deductions, that is the standard deduction and the deduction on the interest on a home loan.
  • Under the standard deduction, an amount up to 30% of the annual net worth is not below the tax threshold. However, the standard discount does not apply if you occupy the only home you own.
  • According to Article 24 of the Income Tax Law, if a person obtains a mortgage loan to buy, build or renovate a house, any interest paid on the original amount is exempt from paying taxes. According to this clause, if one takes a loan for a self-occupied property, an exemption up to Rs 2 lakhs can be used.
  • Also, if someone claims a loan to buy or build before the stage of purchase or actual construction, the interest paid during this period can be paid in five equal installments a year before the property was purchased or upon construction.
  • When one takes advantage of a loan to renew or extend a home loan, the tax exemption cannot be completed until the renewal is complete.
  • If the house is occupied by a private individual, tax exemption can be claimed on the total interest paid.
  • In the event that a person lives in a different city than the one in which he owns his home and lives there in the rental property, tax exemptions may be applied to interest payments of up to Rs. 2 lakhs Only.

Tax Exemption Offered by Section 80C

Section 80C under the Income Tax Act also provides tax breaks for homeowners. These are listed below:

  • Under this clause, people who buy a new home can claim a discount under Section 80C on stamp duty and registration fees. A discount of up to Rs. 1.5 lakhs can be used in this fee.
  • Also, any other expenses incurred during the relocation of a new residential property can claim an exemption under this clause.

Also Read: Tips to sell a Mortgaged Property

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