Buying a property in India may feel like achieving a milestone. In addition to a one-time payment for ownership, it also requires regular property tax payments to retain that ownership. These taxes are paid to municipal corporations, and no central or state governments are involved in this process. 

Even though everyone is familiar with property tax in India, not many people fully comprehend the meaning, calculation and more. However, understanding is essential for both investors and property owners. Therefore, to help you have a clear picture, here is the ultimate property tax guide for homeowners. 

What is Property Tax in India?

So, what exactly is property tax in India? Property tax is an annual tax imposed by the municipal corporation or local government on real estate owners. For local governing bodies, it is a vital source of income for financing public services, including:

• Street lighting
• Sewer upkeep
• Road repairs
• Water supply
• Waste management 
• Recreational facilities

Residents of homes and apartments, as well as landowners, are required to pay this tax on an annual basis. However, not everyone pays the same tax amount as the rate, as it is affected by several factors. This includes the location, size and the intended purpose of the property. Also, not paying these taxes may lead to several financial and other consequences. 

Understanding Different Types of Property Tax

Talking about property tax in India, there are different types levied by the municipal bodies. For your better understanding, here are the different types you should know about:

Residential Property Tax

Only residential properties are subject to this tax, including single-family homes, apartments and housing communities. Because of the property's intended use, residential property taxes are usually cheaper compared to commercial property taxes.

Commercial Property Tax 

Properties utilised for commercial purposes are subject to this tax, including offices, stores and factories. Commercial taxes are typically higher since these properties are taxed at a higher rate. This is because they generate money, which is why commercial taxes are typically higher.

Vacant Land Tax

Vacant land tax is a tax on undeveloped land within the boundaries of the municipality. This tax is frequently levied by the government to promote land development and discourage the speculative hoarding of undeveloped properties. The tax rate is affected by the size, location and urban development plan in the area where the land is located.

Agricultural Property Tax

Only agricultural land is subject to this tax and is often less than that of residential or commercial real estate. 

Agricultural assets qualify for additional exemptions or concessions because they are used to produce food. States may differ in this regard, though, and some may even completely exempt agricultural properties from property taxes.

How to Calculate Property Tax?

Wondering how property tax is calculated? Well, municipal bodies use several methods, each with a unique approach. The methods used for calculating property tax in India are:

Annual Rental Value System 

The annual rental value system, or ARVS, bases the tax on the potential yearly rental income, even if the property is owner-occupied. This technique calculates an expected rental revenue based on local standard rates.

Unit Area System 

Unit area system, or UAS, is another method of how property tax is calculated. It multiplies a fixed rate by the property's area. Municipalities determine this rate, which takes into consideration the property's location, built-up area and intended use. Property tax computations are more standardised and predictable with this procedure.

Capital Value System 

Capital value system or CVS is a method in which property tax is calculated using a set of percentages of the market value of the property. The anticipated price at which the property could be sold in the current real estate market is represented by this market value. To make sure it reflects the most recent rates and developments in the real estate industry, municipalities update the market value regularly.

Factors that Affect Property Tax Calculations

Just knowing how property tax is calculated isn't enough. Several criteria are taken into account while calculating property taxes in India. Depending on local and municipal regulations, the following are the main factors influencing property taxes:

Location of the Property 

In general, properties in upscale cities with higher land values are subject to higher taxes. However, this is the opposite for properties in more rural or isolated locations. When determining property taxes, municipalities take into consideration elements including neighbourhood development, accessibility and infrastructure.

Age of the Property 

Older homes may benefit from depreciation as it helps lower the taxable amount. Recognising that older properties may require more upkeep, municipalities frequently offer depreciation incentives for buildings over a particular age.

Size of the Property

Another factor that affects the property tax in India is the size of the property. Taxes are greater for larger properties with more built-up areas. The built-up area includes the entire floor area of the property, measured from wall to wall. It also includes enclosed areas such as driveways, lobbies, verandas, balconies and other utility areas.

Purpose of the Property

The intended purpose of the property is another factor that might affect the calculation of property tax. For instance, taxes on commercial properties are frequently greater than those on residential buildings. This is because commercial districts generate more cash, and their infrastructure and resources are subject to greater wear.

Valuation Methods of the Property 

Municipalities use different valuation techniques to determine the taxable amount. Therefore, how property tax is calculated hugely affects the calculation. Based on regional regulations, each municipal corporation establishes its own tax slabs and rates. Due to differences in local budgets and income requirements, property tax rates and details might vary significantly, even within nearby cities.

What Happens When You Fail to Pay Property Taxes?

Anyone who fails to pay property taxes may face serious financial and legal consequences. This includes:

• Penalties like fines or interest from municipal corporations. If neglected, it may accumulate over time, resulting in huge amounts. 
• The municipal authority might take legal action. 
• You won't be able to sell the property if taxes are not cleared. For property transactions, you must first show a tax clearance certificate to the municipal authorities. 

Tips for Homeowners to Maintain Their Property Taxes

To save you from penalties and maintain a positive reputation, here is the ultimate property tax guide for homeowners: 

• Always pay your taxes on time, or else you'll have to pay fines or interest charges. You can also save money since many municipalities offer discounts for early payment.
• Avoid long queues at municipal offices by leveraging online portals for easy tax payments. 
• Always keep records and receipts of transactions to prove compliance. 
• Check property assessment records regularly. 

Let Experts Take Full Command of Your House 

All your questions regarding property tax in India end with us. We at Full Basket Property Services offer top-notch support, both for buying and selling a property. We understand it is a complex procedure, and we make sure you don't have to go through the hassle alone. 

Our team of experts has in-depth knowledge and can make finances easy for you. From loans to documentation, we are qualified to help you with all stages. For more personalised support, you can contact us anytime.

For any further information or queries, write to us by filling the contact form in the website, or contact here at 9019000400, directly to our 24x7 available marketing team at your service.