Understanding property tax
One of the most important proofs that you own the property is that you pay the property tax on time. Let us understand what is property tax and why it has to be paid, as well as who has to pay the same. Property Tax is the amount paid by the owner of the property on an annual basis to the municipal corporation or the local governing body for the area.
Property Tax is payable on all tangible properties owned by the owner. This includes, residential homes, office buildings, property for semi-usage as well as factory/warehouse premises. The property tax has to be paid by the owner of the property, irrespective of whether the owner resides in the property or the property is leased out.
Why property tax must be paid on time
Just as owning and enjoying the property is the right of the owner, the regular payment of property tax is the liability of the owner. Having understood what is property tax, let us turn to why the property tax must be paid promptly.
- The property tax is paid on the recent valuation of the property so the property tax receipt can be used as a benchmark for valuing the property. In case the owner is not paying the tax on time, the tenant must pay it and recover from the owner.
- The property tax receipt has an important role to play in the case of property dispute. In such cases, the property tax receipt is an important document to prove ownership.
- Even when the home is funded by a loan from bank, the duty to pay the property tax is of the home owner. In fact, the bank can insist on you to regularly furnish copies of paid property tax receipts for their records.
- One more reason the timely payment of property tax is important is that it is an essential document for changing the electricity, and water connections to your name. The shift will not be done without the property tax receipt.
- In case you are looking to avail mortgage loan against your property, it is necessary to furnish the copies of paid property receipts to the bank. Also, in case, you are availing any other loan and want to show the home as your asset, you need to evidence your ownership with property tax receipts.
Factors that impact the amount of property tax
Additional factors also play a role in amount of property tax payable.
- The location of the property has a role to play. Properties located in tony and posh localities, are liable to pay higher levels of property tax.
- There is a discount for properties that are under-construction properties. The property under construction is levied tax at just two-third the regular rate of tax.
- Interestingly, there are some discounts on property tax available for females who are also co-owners or full owners of the property.
- The government has also given some additional discounts to senior citizens; so if you are above 60 years of age, you end up paying concessional rates of property tax.
Having understood what is property tax and the importance of timely payment of such tax, let us now turn to how the property is valued for determining property tax payable.
Three methods of property valuation for property tax payment
- The first approach is Capital Value System (CVS). Under this model, property tax is calculated as percentage of market value; as determined by the municipality. This approach to valuation is popular in Mumbai.
- The second approach to valuation is Unit Area Value System (UAVS). This is based on the per SFT price as determined of the built-up area of the property. This is based on land value and location and is popular in second rung metros in India.
- The third approach is Rateable Value System (RVS), which is calculated by capitalizing rental value of the property. The notional or fair rental value is determined and then it is capitalized at an appropriate discount rate to arrive at Rateable Value of the property. This method is popular in the Southern parts of India.
Does every property owner have to pay property tax?
Property tax is a state subject and so the rates of property tax differ from state to state. However, some categories are generally exempt from paying property taxes. Government departments and organizations like the police, armed forces, tax authorities etc are exempt from property tax, even on owned property. Even religious organizations registered and subjected to certain conditions, are exempt from payment of property tax. In addition, the government has given special exemption to people with disabilities, former personnel of defence services and the families of martyrs are also exempt. Payment of property tax is also excused for educational institutions and on agricultural properties.