How Do I Calculate My Property Tax?

Fousiya Zaker F
Taxation vector created by storyset ©

A “property” refers to any tangible real estate that a person owns, including buildings and plots, including the ones that have been rented out to third parties.

Any individual possessing a property is obliged to pay a certain amount to the government for their asset every year or every half a year.

A property can be generally categorised into four types:

  • Land/Plot (Without any man-made structures)
  • Permanent changes made to the land (Construction of structures)
  • Personal Property (Vehicles and Equipment)
  • Intangible Property (Patents, Trademarks, Copyrights etc.)

The government charges tax for each type differently. 

In India, Property Tax is recognised for plots and constructions within the plots. The tax is charged in proportion to the monetary value of the property and is used for the development of public properties and amenities. Property tax also changes from one locality to another.

How to Calculate Property Tax? 

Property Tax = Base Value X Built-Up Area X Age Factor X Type of Building X Category of Use X Floor Factor

Generally, the following factors are determined before the calculation of property tax:

  • The location of the property
  • Whether the property is self-occupied or rented out
  • The type of property (Residential, Commercial or Plot)
  • Presence of facilities like car parks, rainwater conservation systems etc.
  • Year of construction
  • The number of storeys, whether the building is a pucca/kutcha structure, etc.
  • Floor Space Index
  • Carpeted Square Area of the property

The determination of these parameters helps the authorities to decide what method to use for the calculation of property tax.

There are three methods of calculation of property tax that are generally used by the authorities:

1. Capital Value System

The property tax is calculated as a percentage of the market value of the property. The market value varies according to the location.

2. Unit Area System

The property tax is calculated as per the unit price of the built-up area of the property. The expected returns from a property decide its price. This price is multiplied by the built-up area of the property.

3. Annual Rental Value System/Rateable Value System:

The annual rent collected from the property is valued by the authorities based on the location, size and condition of the property and the property tax is determined accordingly.

Some general information to keep in mind concerning property tax are:

  • Interest on Property tax may only be applicable in case of late payments. This rate of interest varies from 5% to 20% in different states.
  • The Net Annual Value of your house(s) is the gross income (or the total rent you received) minus the municipal taxes paid by you. Only this net value should be considered for the computation of property tax.
  • Only the rent during the occupied months needs to be considered for tax.
  • If you have more than one house, the net value of the house you live in is not considered income.
  • If you only own one house and you occupy it currently, the income is not taken into consideration.
  • A standard deduction of 30% of the net annual value of the taxpayer’s property is exempted from the tax limit.
  • If you are paying interest on a home loan, the amount is exempted from tax. If the loan was taken for renovation, the exemption can only be claimed after its completion. If the loan was taken for construction or purchase, the exemptions should be sought before the purchase or completion of construction. If the loan was taken for a house occupied by you, you are eligible for exemption up to 2 lakhs. 

Taxes are Easy!

Payment of property tax is not as tedious a task as it used to be. Most municipal corporations now provide the provision for the payment of property tax on their websites.

The options to choose the category of property, the year for payment of tax etc. are readily available on most websites now.

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