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calenderFeb 1, 2024

Property Tax - Calculation, payment method and meaning

Embarking on the journey of property ownership, you're likely to encounter a crucial term: property tax. But what is property tax, and how does it affect you as a property owner? Let's understand the concept of property taxation, diving into its meaning, definition, and significance. By exploring and defining this essential aspect of property ownership, you'll gain a clearer understanding of what is property taxation and the impact of this tax on property on your financial responsibilities.

Understanding property tax

In India, property tax stands as a pivotal local government levy that property owners are mandated to pay. It encompasses charges on both residential and commercial properties, forming a substantial part of municipal finance.

The property tax definition can be understood as the tax imposed based on the assessed value of a property, which includes the valuation of both the land and the buildings upon it. Each municipality adopts its unique rate and method of calculation, often reflecting the local real estate market and specific policy considerations.

To define property tax in a broader sense, it is not just a fiscal obligation but a cornerstone of local governance. It is instrumental in funding the essential public services such as road upkeep, public safety measures, education, and the development of public infrastructure.

Thus, the property tax meaning in the Indian context encapsulates a critical financial contribution by property owners, one that significantly influences the growth and sustenance of local communities and their amenities.

How to calculate property tax?

Understanding the calculation of property tax can seem complex due to its lack of uniformity nationwide. Nonetheless, a basic formula generally guides these calculations:

Property Tax = Base value × building type × age factor × built-up area × floor factor

Despite the variance in methods used by different civic corporations, the core elements of property tax calculation largely remain consistent.

The assessment of a property for tax purposes hinges on several critical factors:

1. Location: Where your property is situated significantly influences its tax valuation.
2. Occupancy status: Whether the property is self-occupied or rented out affects the tax amount.
3. Property type: The nature of the property - be it residential, commercial, or a plot of land - plays a role in its taxation.
4. Amenities: Features like car parking facilities and rainwater harvesting systems can impact the tax value.
5. Construction year: The age of the building is an important consideration.
6. Construction type: The tax varies depending on whether the property is a single or multi-storied structure and whether it's built with high-quality materials (pukka) or more temporary ones (kutcha).
7. Floor space index: This denotes how much floor area you can build upon a plot of land.
8. Carpet Area: The actual usable area within the property also influences its tax valuation.

Different methods to calculate property tax

In India, the calculation of property tax varies significantly across different municipalities, reflecting regional differences in property values, local regulations, and civic needs. Here are some common methods used to calculate property tax in the country:

1. Annual rental value system (ARV): This system calculates property tax based on the annual rent value that a property can generate. Used in cities like Chennai, it considers factors like property location, condition, amenities, and market trends to estimate the potential rental income.

2. Capital value system (CVS): Popular in cities like Mumbai, CVS bases the property tax on the market value of the property. The market value is typically determined by the government and revised periodically. This system considers the property's location, land price, and use type (residential or commercial).

3. Unit area value system (UAV): Implemented in cities like Delhi and Bangalore, the UAV system calculates tax based on the per-unit price of the built-up area or carpet area of the property. The unit price is determined by the expected returns from the property, considering factors like location, occupancy status, and property type.

4. Hybrid system: Some municipalities use a combination of the above methods. For example, they might use ARV for residential properties and CVS for commercial properties.

Each method has its own set of rules for deductions and exemptions, such as waivers for properties owned by senior citizens, women, or differently-abled persons or incentives for eco-friendly practices like rainwater harvesting.

How to pay property tax?

Paying tax on property online in India can be done efficiently by following these simplified steps:

1. Visit the municipal corporation website: Go to the official website of your city or state's municipal corporation.
2. Find the property tax section: Look for the 'Property Tax' tab, usually in the main menu or on the home page.
3. Enter property details: Provide necessary property details like property ID or owner name for identification.
4. Fill out the tax form: Complete the property tax form, selecting the correct assessment year and providing relevant property information.
5. Select payment method: Choose a mode of payment, such as credit/debit card or net banking.
6. Complete the payment: After payment, an electronic challan or receipt will be generated. Save this for your records.
7. Confirmation: Await a confirmation email or SMS as final verification of your payment.

Also Read: Do you get tax benefits on a home loan?

Conclusion

Understanding property taxes is more than a mere compliance task; it's about making informed decisions that can lead to substantial savings and financial stability. By equipping yourself with the knowledge of how property taxes work, you can plan and budget more effectively, ensuring you never miss a beat in the financial rhythm of property ownership.

In the spirit of financial planning and empowerment, Axis Bank Home Loan emerges as a key ally. With options for both floating and fixed interest rates tailored to meet your needs and the convenience of smaller EMIs spread over a tenure of up to 30 years, the journey to your dream home is as seamless as it gets. Processing fees are capped at a reasonable rate, ensuring transparency and affordability. With Axis Bank, you can rest assured that the path to owning your home is paved with clarity and support at every step.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.