What is Property Tax in India and How is it Calculated?

In India, much like in any other country, taxes are the primary source of income for the government. The government uses these taxes to provide amenities and facilities to the common man.

In India, property refers to any tangible real estate - residential or commercial - registered under the name of an individual. Those who own a property must pay property tax to the government. Depending on the government policies of a state, one may be required to pay this tax to either the state government or the Municipal Corporation.

So, what are the different types of properties on which one must pay property tax? 

According to the Indian National Laws, individuals or real estate owners are required to pay property tax on four different types of property:

Different types of property

1. Personal Property:

Under this fall immovable assets, such as cars. 

2.Land:

Under this category falls land. If you own a piece of land and you have done some construction over it, you won't be able to pay tax under the land category as under this category only falls land in its most basic form. 

3. Improvements made to land:

This includes man-made structures built on land, such as homes, godowns, shops, etc.  

4. Intangible Property:

The last category includes intangible property.  

These are the four broad types under which all properties in India are categorized. However, property tax is not to be paid on all these different types of properties. In India, property owners are required to pay taxes only on those properties that fall within the 'land' and 'improvement on lands' categories. The Municipal Corporation in any area is responsible for assessing the value of a property and it is based on this value that the final property tax to be paid is calculated. 

Property tax-payers must also know that the property tax varies from city to city and state to state. So, property owners must carefully understand the state laws to understand their property tax obligation. 

Also Read: Types of Loans Available in India 

How do You Calculate Property Tax?

Property owners must know that different states use different property calculation methods. However, the basic procedure to calculate property tax remains the same throughout the country. The procedure involves assessing the value of a property after considering various factors, such as the type of property, type and year of construction, occupancy status, carpeted square area, etc. It is the duty of the Municipal Corporation of an area to assess the value of any property based on the factors mentioned above.  

Once the civic agency knows the value of a property, they calculate the property tax to be paid using the following formula:  

​Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor.

How is Property Tax Calculated? 

In India, three different systems are followed for property tax calculation. Let us look at each of these systems in detail.  

1. Capital Value System:

This system is most popularly used in Mumbai. Under this system, the value of the property is calculated based on the market value of the property and the market value of the property is calculated by the local governing body.  

2. Annual Rental Value System: 

Under this system, the property tax is calculated based on the yearly rental derived from the property. However, borrowers must know that under this system the property tax is not calculated on the actual rental value coming from the property but the valuation of the rent based on the area and location of the property. Hyderabad and Chennai use this method of property tax calculation. 

3. Unit Area Value System:

Under this system, the total tax to be paid is calculated based on the built-up area of the property. This method is used in Patna, Delhi, Hyderabad, Kolkata and Bengaluru. 

Also Read:  Tax Savings Under Sections 80C, 80D, and 80G 

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