Property tax is charged by the govt on all tangible assets that an individual owns. These property assets could include residential homes, office buildings and premises rented out to third parties.
What is Property Tax?
Taxes are the first source of income for a government, with the taxes earned dictating the resources available to citizens. Every property is an asset which is taxable and therefore the land tax is an annual amount paid by a property/land owner to the govt . This tax might be paid either to the local government or Municipal Corporation, looking on government policies.
The word “property” during this context refers to all or any tangible assets under the ownership of an individual and includes houses, office buildings and premises rented to 3rd parties. Property tax, as an idea has been around for hundreds of years and is acknowledged across the world , with records of farmers and peasants paying tax on their properties even in the middle ages.
Property Tax in India:
Property tax features a deep rooted past things in India, finding a mention in epics like Manu Smriti and Arthasastra, which express about different tax measures in place at this point. Kings would levy a small tax on farmers and landowners, which might be wont to enhance the treasury of a kingdom. The advent of the British brought in a more streamlined process, with land revenue forming a major chunk of the British treasury. They devised a system of centralization with respect to land tax, appointing individuals to collect tax on behalf of the crown. This gave birth to tax collectors and a proper collection system within the country.
Types of Property:
Property, in India is assessed into four categories, which help the govt estimate tax under certain criteria. The different property divisions in the country are mentioned below.
- Land – in its most simple form, without any construction or improvement.
- Improvements made to land – this includes immovable manmade creations like buildings and godowns.
- Personal property – This includes movable man made objects like cranes, cars or buses.
- Intangible property
Present State of Property Tax:
Property tax in India is to be paid on “real property”, which incorporates land and enhancements toward land, with the govt appraising the price of every such property and assessing the tax in proportion to its value. It is the duty of the municipality of a specific area to do this assessment and determine the land tax , which may be paid either on an annual or semi-annual basis. This tax amount is used to maintain a local amenities including road repairs, maintenance of parks and public schools, etc. Property tax varies from location to location and may vary in several cities and municipalities.
Calculate Property Tax:
The formula is used for calculating tax of the property is given below:
Property tax = base value × built-up area × Age factor × form of building × category of use × floor factor.
Property tax in India depends on the situation of a property in question, with taxes varying from state to state. Different civic corporations use different methods to calculate tax, but the universal overview of such calculations remains an equivalent and is explained below.
An assessment of the property is first administered by determining the world it’s in, occupancy status (whether it’s self-occupied or rented out), kind of property (residential, commercial or land), amenities provided (car park, rainwater harvesting, store, etc.), year of construction, kind of construction (multi-storied/ single floor/ pukka or kutcha structure, etc.), Floor space index and carpeted square area of the property.
Once these guidelines are determined by the civic agency can use a formula it deems fit to calculate tax. Different companies use different formula.
The tax on a property will vary consistent with the various components mentioned above and it can be easily computed online, through the official website of the municipal corporation concerned.
How to Pay Property Tax Online:
The internet has made a huge impact on how the world functions, opening new doors and simplifying lives. Paying land tax was considered a large hassle in the past, but those days are long gone, because of the choice of paying land tax online. Most municipal corporations provide the choice of paying land tax online, streamlining the method and saving valuable time.
Pay Property Tax Online by following these Steps:
- Log onto the official website of their municipality/city corporation.
- Choose the tab indicating land tax and navigate to the payment option.
- Choose the proper form (either 4 or 5), based on the category under which an individual’s property falls. These forms are used to determine if any changes have been made to a property in question.
- Choose the assessment year. This is the year that land tax must be calculated and paid. Most corporations provide an choice to clear backlogs in land tax payment.
- Individuals will then be required to fill in their property tax identification number and the other relevant document concerning their property (zone under which it falls, property type, etc.) including the owner’s name.
- Once all relevant information has been entered, individuals can choose the mode of payment, which might be credit/debit cards or internet banking.
- Once payment is made individuals can take a print out of the challan for their reference.
Note: These are the essential steps involved in paying land tax online and will vary counting on the city/town corporation.
Interest on Property Tax:
Late payments towards land tax can attract a fine, generally it’s like a particular percentage of the number due. This interest varies from state to state, with some states choosing to waive off such interest and others charging rates from 5% to twenty , counting on their individual policies.
Some states waived off penalties on land tax while Bangalore decided to slash interest for late payments from 20% to 10%, during a bid to induce more people to pay their dues.
Computation of Income from House Property
Understanding income from house property can be tricky. To make it simple, here are a few things to keep in mind:
- Only internet Annual Value of your house(s) is taken into account for taxation. Net Annual Value is received once you deduct the municipal taxes paid on the property from the gross annual value of the house. For example, if you’re receiving Rs.1.2 lakh as rent annually on a house you have released, and you’re paying Rs.40,000 as municipal taxes, then internet Annual Value of your home is Rs.80,000, and you’ve got to pay tax only on this amount.
- If your house(s) is lying vacant for any period during the fiscal year thanks to lack of tenants, you have to think about only the income received as rent and not compute it against the whole 12 months. For example, if a house yielding Rs.17,000 as rent is vacant for 4 months of the fiscal year, then the gross value of the house will be Rs.1,36,000 (Rs.17,000 * 8). Tax payable on this income are calculated after deducting the municipal tax amount paid and therefore the standard deduction of 30%.
- If your house(s) is lying vacant and not supplying you with any income, but you’re paying municipal taxes, you’ll offset this loss against income from other sources – such as your salary or rent from the other property – during an equivalent fiscal. If you’re unable to offset the loss within the same year, you’ll carry over this loss for up to eight years.
Tax Deductions against Income from Property
Section 24 is called as “Deductions from income from house property”. ‘Income from house property’ is applicable some of the following cases:
- If you’re renting out your house(s), then the rent received are considered as a part of your income
- If you’ve got more than 1 house, then internet Annual Value of the homes , except the house you’re living in, are considered as your income.
- If you own just one house and you’re living in it, the income from house property are considered as NIL. Any income derived from rent and annual value of additional houses, are subject to tax after deductions made under Section 24.
Deductions under Section 24
There are 2 forms of deductions under Section 24 of the tax Act:
- Standard deduction: This is often an exemption allowed to each taxpayer, where a sum adequate to 30% of internet annual value doesn’t come under the tax limit. This is not applicable if you are occupying the only house you own.
- Interest on loan: If you’ve got taken a small Home Loan for purchase, construction or renovation of the house, whatever interest you pay on the principal amount of the loan is exempted from tax payment. The sub-clauses in this category are:
- If the loan has been taken for a self-occupied property, then you’ll claim exemptions of up to Rs.2 lakh.
- If you took a loan for purchase or construction (not renovation) of a property before actually buying or completing its construction, you’ll still claim the interest. You can seek deductions on the interest paid before the development or purchase is completed, in 5 equal instalments, from the year during which the home is bought or the construction is completed.
- If the loan is taken for renovation or reconstruction of a house, you can’t claim tax exemption until the renovation is completed.
To avail this deduction, you would like to compute the interest amount you need to pay to the bank or financial organization that you simply took the loan from, break away the principal repayment. It doesn’t matter whether you’ve got actually paid the quantity to the financier – you’ll get exemption for the entire annual interest amount.
Exceptions under Section 24
- If the home is not occupied by you, you’ll claim exemption for the entire interest amount that you simply are paying, with none upper limit.
- If the home is not occupied by you because you stay in another town thanks to your employment or business,or you sleep in another property or rented property within the city of your employment, then you’ll claim tax exemption on interest payment only up to Rs.2 lakh.
- There is no deduction for any commission or brokerage for arranging the loan or tenant.
- You have to shop for or complete construction of the house within 3 years of taking the loan for you to be able to claim maximum deduction on the loan interest amount. If the development or purchase isn’t complete within 3 years, you’ll be ready to claim only Rs.30,000 rather than Rs.2 lakh.
- You must have an interest certificate for the loan that you simply are taking.
Deduction under Section 80C:
Individuals who purchase a brand new house can claim deductions under section 80c of the tax Act. Under this clause, deductions are often claimed for stamp tax and registration charges, which could add up to around 10% of the overall cost of a house. Deductions claimed under this section are subject to the condition that they do not exceed Rs 1.5 lakh.
Individuals can also be claim a deduction towards the other expense during the process of transfer of property. Homeowners should keep in mind that this is applicable only for new residential properties.
Capital Gains Tax on Property:
Capital gains tax refers to the tax levied on the profit which is that the outcome of a property sale. Capital gains tax are often a serious source of wealth drain if not handled smartly. A simple way to handle this is often to get a replacement house from the proceeds of a property sale, keeping in mind that such property should be purchased within two years of sale. Proceeds from a property sale can also be not to construct a house, ensuring that capital gains tax on property doesn’t become too taxing.
Overview about BBMP Property Tax:
Bengaluru, the Silicon Valley of India, has been one of the most populated cities in the country. It is also one of the few cities in India which has a diverse population. The main reason behind the diversity is the crowd that the city attracts from across the country. Property tax is charged by the BBMP when an individual purchases real estate in the city.
Bruhat Bengaluru Mahanagar Palike or BBMP is that the administrative system which takes care of the civic amenities of the city also because the infrastructural facilities of the Greater Bengaluru metropolitan location.
Frequently Asked Questions: Property Tax
- Is property tax decided by the central government?
Ans: No. Property tax is set by your local administration – that’s , urban local bodies like Municipal Corporation and similar organisations.
- My house owner says I as a tenant should pay the land tax. Is that legal?
Ans: No. In certain countries tenants are at risk to pay land tax but in India the house owner should pay the tax. If your house owner is forcing you to pay this amount, then you’ll sue him within the civil court.
- Is there any way I can get exemption from land tax?
Ans: You may get a property tax exemption based on your age (if you are a super senior citizen, for instance ), net income of the individual, type of property, location of property (if it’s located during a famine zone or such affected regions), history of public service or value of the taxable property. If you’ve got a vacant plot of land, you don’t need to pay land tax thereon . You need to see together with your local administration for the main points.
- Why is my property tax assessment above the worth of my property?
Ans: Either you are not aware of the market value of your property, or your assessment is wrong. It is the best way to approach your local administration and clarify. The bill also will offer you a clue on why the tax amount is high.
- Can I make property tax payments online?
Ans: This depends on your municipal authority. If they permit online payment of property tax, you’ll make use of that facility. Bengaluru, for example, has recently started allowing land tax payments online.