How Is Property Tax Calculated In India?

Property Tax (also known as House Tax) is a tax levied by the local municipal authorities anywhere in India. Usually, this meant for upkeep of public amenities such as roads, sewerage systems, parks, and other infrastructure facilities like lighting etc., as well as for maintenance of the existing infrastructure. Owners of the property over whom tax is levied have to pay, either annually or semi-annually. Property tax rates differ across states, cities and even within zones of the same city. Property Tax is a major source of revenue in urban local bodies in almost every part of the world. For example, Mumbai collects around Rs 10,000 crore. Bengaluru collected only Rs 2,000 crore. (1,857 crore as on Mar 20 2015-16.)

In India, property tax is levied on real estate compromising buildings or land attached to the buildings. Vacant plots of land without any adjoining building are usually exempted from tax. These types of properties are liable to be taxed under property tax in India:

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

There are three main ways in which Property Tax can be calculated given below.

Annual Rental Value or Rate-able Value or ARV:

Chennai and Hyderabad follow the Annual Rental System model in which Annual Rental Value or Rate-able Value of a property is the gross annual rent at which the land or building might reasonably be expected to be let-out from year to year. These are estimated rates whose value depends on various factors such as Size of the property Location Proximity of the property to certain landmarks, locality Condition of the premises, amenities provided etc.

Capital Value System or CVS

CVS is calculated as below:

Capital value= Market value of property x Total Carpet Area x Weight for Construction Type x Weight for age of building.

Property Tax= Capital Value of Property x Current Property Tax x Weight for User Category.

What we can see here is that CVS is the estimated market value of the property which would be used to estimate the taxes to be paid. Generally, this market value is fixed by the stamp duty department of the area. The value of weights of construction type, age and user category are assigned as per discretion of municipal authorities.

Unit Area System or UAS:

In New Delhi, Bangalore, Kolkata, Hyderabad, Patna and Ahmedabad property tax is calculated by fixing a price for per unit value of the area. This is called UAS system where property taxes are levied on the per unit price of carpet area of the property. Generally, you need to ascertain the value of property fixed for your zone and multiply it with the carpet area of your house. Patna was the first  city where this system of property tax was introduced. In New Delhi, the unit-based system of collecting property tax was implemented in 2004. A unit area value is fixed for zones of the city per square metre for the purposes of calculation of the property tax. The zones are classified according to the guidelines given in Municipal Corporation Acts of the respective city.

Make sure to pay your property taxes on time. Late payments towards property tax may lead to penalties amounting to a certain percentage of the total tax value. This percentage fine varies from state to state.