How To CALCULATE PROPERTY TAX?

When it comes to calculation of income tax in India property is considered to be a source of income in India and that the reason why the tax is levied on the property. Local municipality authority levies ta on property for purpose of maintenance of basic civil services in the locality. In India property tax is payable on the real estates which consist of building flats , or any superstructure constructed above or below the said land is liable for taxation. In India unlike other countries vacant plots are not subjected to taxation in India.

Tax is calculated on the annual value for the said property when it comes to self-acquired property, i.e. the person who owns it is using the same for the residential purpose the valuation ofthe said property comes to be zero. Under income tax two types of deductions are allowed under section2 4 of the income tax act 1961 that are:-

1. Statutory deduction: – Under Income tax Act a person who is subjected to pay the house tax is allowed to deduct 30 of the Net Annual Value. These 30 % deductions are allowed as it is believed that 30% of the amount will be spend over the year on the account of repairs and related expenditure.
2. Interest on borrowed capital: – Under Income Tax Act a person can claim the deduction of the interest which is liable to be paid to the creditor. There is an upper ceiling of Rs. 1, 50,000/-. i.e. The borrower can claim deduction of the actual interest if the said amount is less than the upper ceiling.

Income of House Property	Amounts (in Rs.)
Total annual rental income value	20,000 x 12 = 2,40,000
Less: Municipal Taxes	20,000
Net Annual Value (NAV)	2,20,000
Deductions under Section 24
Standard deduction (30% of NAV)	2,20,000 – 66,000 = 1,54,000
Interest on borrowed capital (if applicable)	50,000
Income from House Property	104,000

There is no separate head under which property tax is charged by the government rather It’s just a name property tax include tax paid to the local municipality as discussed above and is subjected to taxation under Income Tax Act 1961 while calculating income from the property that is owed by the individual as it is believed that the property is an income generating instrument. Though there are exception and loopholes that can be used to evade the property tax under income tax act 1961 that is by way of owning a property jointly, owning second property in the name of a relative by these ways a person can claim deduction individually. When it comes to calculation of property tax there are number of factors that influence the same such as type of property, area, locality, amenities provided, year of construction and space. Though different agencies have different parameters to calculate the property tax but when it comes to Mumbai municipal corporation the formula that is used by the agency is as follows:-

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

Penalty and interest

Generally when a person makes a default on payment of these taxes interest is charged which generally varies with a upper ceiling of 20% and sometime penalty or punishment is also imposed, but recently various state government have initiated various schemes under which a person whose dues with regard to the payment of the property tax are present than he/she can claim rebates. Similar case was seen, when Delhi government imitated to provide 15% rebate on previous years payment.

Author: This blog is written by  Mr. Devashish Jain, student of College  of Legal Studies, UPES, a passionate blogger & intern at  Aapka Consultant.

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