What Is Property Tax and How Is It Calculated?

What Is Property Tax and How Is It Calculated?

28 Dec 2019
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If you do not have any idea about what is property tax, this article will help you get a better idea about it. If you own a house or any property in India, the municipal authority of your area charges you a tax on it. You have to pay this tax on any real estate you own, and the tax amount depends on the property’s value. The tax rate and the process of evaluating a property largely depend on the municipality where you reside.

What is a property tax?

Property tax is also referred to as house tax. It is implied on real estate owners by various municipal authorities such as a municipal corporation, municipality, or panchayat in all the rural and urban areas of India. The duty of a municipal authority is to maintain the quality of basic public facilities like the sewage system, roads, and streetlights in your area. The municipal authority imposes the property tax to use the money for maintenance.

The property tax has to be paid either annually or semi-annually by the owner of your property. The amount of the tax depends on your property, but it also varies depending on where you live. Different states and cities have separate property taxes that are implemented on the properties within the governed areas. The tax might vary within the same city too, depending on the municipal authority of the city.

In most places of the country, this tax is the main source of revenue for the local authorities. The property tax is implemented on both commercial and residential buildings, along with the lands that are attached to them. Any development made on the land is also taxable. However, the property tax is not applied to empty plots if there is no building adjoined to the land.

How property tax is calculated 

Municipal authorities do the property tax calculation and the taxation value depends on the worth of your property. Primarily, the calculation is done in three ways:

  • Capital Value System (CVS)

  • Rate-able Value System (RVS) or Annual Rental Value System

  • Unit Area Value System (UAS)

Knowing how to calculate property tax will prove beneficial for you in the long run. The aforementioned methods of calculating property tax are explained ahead in detail to give you a clear idea of how to calculate it as per your city of residence.

1. Capital Value System (CVS) 

Under this system, the property tax is implemented as a certain percentage on the current market valuation of your property. The value is decided by the government and it depends on multiple factors. Firstly, the value is calculated depending on the location. The real estate prices vary depending on cities, states, and even the area where the property is located. The second determining factor is the type and size of the property.

As the value of real estate properties changes at a fast rate, the government revises the prices every year. The updated values are then published to keep you informed about the changes. CVS is used in the metropolitan city of Mumbai.

2. Rate-able Value System (RVS) or Annual Rental Value System

The Rate-able Value System (RVS) is used to implicate taxes on a property based on its annual rental value. However, you must keep in mind that the value might not be exactly the amount of rent you collect from the property every year. The annual rental value of your property is determined by a municipal authority and the tax liability depends on the same.

Various aspects related to the property determine this value. The municipal authority decides the value depending on the size and location of the property. The condition of your property is also taken into account by the authority to determine the value. Apart from these, certain other factors are considered. These include the property’s proximity from necessary facilities and prominent landmarks.

To put it simply, the Annual Rental Value of your property is not what you actually earn from the rent. It is the value as per the municipal authority according to the various aforementioned aspects such as the property’s size and location. Cities like Chennai and Hyderabad follow this property taxation system.

3. Unit Area Value System (UAS)

This is one of the most commonly used property taxation systems in India. The Unit Area Value System (UAS) is used in cities like Patna, Hyderabad, Kolkata, Delhi, and Bengaluru.

Under the UAS, the taxation is imposed on per unit value of the property’s built-up area. The per-square-foot monthly price of the property is determined based on many different aspects. The price varies depending on the area the property is located in, usages of the property, and the price of land in the area. Once the anticipated returns of your property are determined, the value is multiplied by your property’s built-up area.

Conclusion

Now that you know how the property tax calculation is done, you can make sure to start paying the tax correctly and on time. However, you need to understand certain other things regarding property tax and benefits on property tax on home loan.

One of the most common reasons to miss paying the taxation is the confusion about who is liable to pay it. Always remember that even if the property is rented out, it is the responsibility of the owner to pay the property tax. Also, always make sure to pay the property tax on time as a delayed payment results in a penalty in the form of an interest on the due amount.

You can pay the property tax to the respective municipal authority either by visiting the area office or through their website. Make sure to contact them in case of any doubt and verify the amount of tax you are required to pay. It is your duty as a responsible citizen to pay your taxes rightly and on time.

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