In India, buying property requires a one-time payment for ownership, but property tax in India must be paid regularly to maintain that ownership. This direct tax on immovable assets, also known as house tax or real estate tax, is typically paid annually to municipal corporations.
The amount varies with the size of the property and the kind of construction. The funds collected support public services like road repairs, sewer maintenance, street lighting, etc. In this blog, we’ll break down the different types of property taxes, the key factors that influence them, and how to calculate your property tax effectively.
Table of Contents
Types of Property Tax in India
Property tax in India is categorised based on the type of property owned. There are four major types:
- Residential Property Tax: This tax applies to residential properties like houses, apartments, and bungalows, with the amount based on the property’s size, location, and value.
- Commercial Property Tax: Commercial properties like offices, shops, and malls are taxed at higher rates than residential ones due to their profit-making nature.
- Industrial Property Tax: Industrial properties like factories and warehouses are taxed differently from residential and commercial properties.
- Vacant Land Tax: Vacant lands without construction are subject to a vacant land tax. While most of India exempts such land, states like Tamil Nadu, Andhra Pradesh, Punjab, and Jammu and Kashmir impose taxes on unused urban land to discourage underutilisation.
Different Methods for Calculating Property Tax
Municipalities generally use three methods to calculate property tax in India:
- Capital Value System (CVS): Tax is calculated based on the current market value of the land. A professional assesses factors like land improvements, building shape, and local area benefits, with larger plots paying more.
- Unit Area Value System: Tax is determined by the built-up area of the property. The value is based on factors like location, usage, and land price, and then multiplied by the area.
- Annual Rental Value System (RVS): Tax is based on the estimated annual rental value of the property, even if the property isn’t rented out.
Factors Influencing Property Tax Calculation
- Property Age: An old property has lower taxes because it depreciates. A new property tends to be taxed more on the basis of current market value.
- Property Size: Larger properties generally face higher taxes, calculated on both land size and built-up area, including extras like gardens.
- Property Location: Normally, real estates based in urban or commercial places usually involve a higher tax rate than that of rural location.
- Property utilisation: The tax rates differ with property. Example, commercial properties attract more taxes while the agricultural lands usually have less tax rates or are exempted.
- Tax Slabs and Rates: The property tax in India is graduated by value, however, properties whose value is the highest go into more high brackets and hence create higher liabilities.
- Property Valuation Methods: Municipalities use various assessment methods to determine property value, influencing tax amounts based on market value and rental income.
How to Calculate Property Tax?
A very important point that comes in here is that the property tax in India differs from place to place. Therefore for instance though you might have two houses of the same size in Mumbai and Chennai, you will pay different sums for each of these. This happens because every state and region has its unique way of calculating property tax.
This sometimes can look pretty confusing or even not fair at all, however, tax authorities have a general formula for that makes the process look fair and consistent:
Property tax = Base value x Built-up area x Age of the property x Type of property/building x Usage category x Floor factor.
This formula breaks down into key factors that determine how much tax you’ll owe:
- Base value: How much the land is worth.
- Built-up area: The total space your property covers.
- Age of the property: Older properties may have a lower tax rate.
- Type of property/building: Is it residential or commercial?
- Usage category: Do you live there or rent it out?
- Floor factor: Is it a single-storey building or a multi-storey one?
By plugging these details into the formula, you can get a rough idea of what your property tax will be.
However, the easiest way to calculate property tax in India is by using online tax calculators available for different states. Most states have these calculators available on their portals, making the process much simpler. Just enter the required details, and you’ll have your estimate in no time!
Conclusion
Understanding property tax in India is essential for every homeowner, as it helps fund crucial local services. While tax calculations differ based on location and property type, factors like property size, usage, and age play a significant role in determining your tax amount. Being informed about these aspects makes managing property taxes much easier.