Property Tax - Types, Calculation & Payment

Property tax levied on the ownership of property is a substantial source of revenue for city-level municipal governments in India. The word ‘property’ in this context stands for all tangible assets under the ownership of an individual. Therefore, this umbrella term includes all properties – from self-owned residential spaces to commercial premises rented out to third parties.

Types of Property

For the ease of property tax calculation and estimation, the Indian government classifies property into four categories-

• Personal property: It refers to movable man-made objects, such as cars, buses, trucks, cranes, etc.

• Land: Land, in this case, refers to core land without any construction or improvement done to it.

• Improvements made to land: This includes improvements made to land in the form of construction, like buildings or warehouses. 

• Intangible property: Intangible property includes the ownership of properties that do not have a physical substance. It includes patents, copyrights, royalties, etc.

What is Property Tax in India

In India, owners of real estate properties are subject to pay a property tax. It is an annual charge levied by the Government of India on property owners. This tax is collected by the local government or the Municipal Corporation, whoever is authorised to do so in a given state. 

Here, the term ‘property’ refers to land and improvements made to the same.

The government appraises the value of such properties and assesses the tax in proportion to its value. The Municipality of a particular area carries the responsibility of conducting this assessment and determines the tax payable by a property owner. 

Property tax can be paid on an annual or semi-annual basis. This tax varies with each location, city and state.

How to Calculate Property Tax?

Although the property tax is not unified across the country, the general guideline for its calculation is based on a mathematical formula. This formula is as below –

Property Tax = Base value x Type of building x Age factor x Floor factor x Category of use   x Built-up area

Various civic corporations use different methods to calculate property tax. However, the general overview of these calculations remains the same.

A property is assessed based on the following factors:

• Its location
• Occupancy status of the property: self-occupied or rented out
• Property type: residential, commercial, or land
• Amenities provided: Car park, rainwater harvesting, etc. 
• Year of construction
• Type of construction: single floor, multi-storied, pukka or kutcha structure 
• Floor space index
• Carpeted square area of the property

Premised on these factors, a civic agency uses a formula it deems suitable.

Different Methods to Calculate Property Tax

Municipal authorities use one of the following three methods for property tax calculation:

• Unit Area Value System

This system calculates taxes on the basis of a property’s per-unit price of its built-up area. The price is evaluated based on the expected returns of the property as per its usage, location, and land price. This value is then multiplied by the built-up area, which gives its ultimate tax valuation. Several municipal authorities in India, such as Delhi, Hyderabad, Bengaluru, Patna, and Kolkata, follow this method.

• Capital Value System (CVS)

Under this system, property tax is derived as a percentage of the market value of a property. The government decides this market value based on the locality of a given property. This valuation system is followed in Mumbai. 

• Annual Rented Value System

As per this system, tax is calculated on the rental value of a property. This valuation is based on the location, size, and condition of a property. It also takes into account the property’s proximity to landmarks and other relevant amenities. Chennai and parts of Hyderabad use this system to determine property tax.

How to Calculate House Tax?

The calculation of house property tax can be somewhat complex. However, a simplified elaboration of it is as given below:

• Authorities derive the Net Annual Value of a house by deducting municipal taxes paid against it from its gross annual value. For instance, if a house owner receives Rs. 1,20,000 as rent and pays Rs. 30,000 as municipal taxes, then the Net Annual Value of this house stands at Rs. 90,000. The house property tax is, therefore, paid on this amount. 
• If a house is vacant for any period during a financial year, only the income received as rent during the year is subjected to tax. For example, if a house yields Rs. 10,000 per month as rent but remains vacant for 3 months, then the gross value of this house will be Rs. 90,000 (Rs. 10,000 x 9). Tax payable on this income is ascertained after deducting the municipal tax amount paid, which generally stands at 30%. 
• If a house is lying unoccupied, thereby not yielding any income, but the owner is paying municipal taxes, he/she can offset this loss against income from other sources. 

Pay Property Tax Online

An individual can pay property tax online by following the steps mentioned below:

• First, log in to the official portal of the municipal corporation of their city/state. 
• Select the option ‘Property Tax’ and then move to the payments option.
• Fill out the property tax form and choose the assessment year. 
• Select the mode of payment from the options provided therein. One can choose between debit/credit cards or net banking. 
• Successful payment generates an electronic challan. 

Tax Application Number

Knowing your tax application number is essential if you choose to pay your property taxes online.

Follow the procedures below to find out your new application number online.

• Navigate to your municipality’s property tax page.
• Select “GIS-based New PID.”
• At the bottom of the page, look for “To Know Your New PID Click Here.”
• Enter the old application number and press the “search” button.
• Choose a name and click “Fetch.”
• The information will be displayed on the screen. Look for inconsistencies in the details.
• Click on “View your property in Map” for additional information.
• Locate the property using Google Maps.
• Details can be downloaded or saved.

Income Tax Exemptions under Section 24

There are two kinds of deductions under Section 24 – standard deduction and deduction on interest against a home loan. These are discussed below:

• As per standard deduction, a sum of up to 30% of the net annual value is exempt from tax payment. The standard deduction does not apply to an individual occupying the only house he/she owns. 
• Section 24 of the Income Tax Act exempts any interest paid on the principal amount of a home loan availed to fund the purchase, construction, or renovation of a house. However, if a taxpayer takes a loan for a self-occupied property, he/she can avail an exemption up to Rs. 2,00,000.
• No deduction for brokerage or commission for arranging a loan or tenant. 
• An individual, after availing of a loan, should purchase or complete construction of a house within 3 years of its tenure, failing which they can claim only Rs. 30,000 instead of Rs. 2,00,000. 

Deduction under Section 80C

This deduction under Section 80C is available for homeowners possessing only one house property on the date of sanction of a loan. 

Here, the value of this home loan availed should be less than Rs. 35,00,000, whereas the value of this property must be less than Rs. 50,00,000.