In November 1997, the Union Ministry of Urban Development circulated a set of guidelines to states and Union territories on property tax reform, which recommended area-based taxation taking into account the characteristics of a building. These characteristics include age, usage and structure of the building. The government through this circular recommended state authorities and city development agencies to follow the simpler unit area-based method of calculating property tax instead of the earlier flawed rateable value method and the capital value system. While the rateable value method was based on standard rents fixed by the Rent Control Act, the capital value system took values fixed by the revenue department. However, in the absence of data in both the cases, there was under-reporting to save taxes.
What is property tax?
Property tax is levied on the value of property. The owner needs to pay this tax to the development authority for the maintenance of basic civic services in the area.
Owners of self-occupied or rented residential house, shops, office building, factory or a warehouse have to pay this tax. Vacant plots of land without any adjoining building are not liable to be taxed under this head, but as income from other sources.
How is it calculated under area-based method?
The authorities assign a unit area value in rupees per sq. m or rupees per sq. ft for each locality and colony. The annual value of the property is calculated by multiplying the covered area with the unit area value for the locality where your property is located.
Other factors such as occupancy, age and structure are also taken into account. Points are assigned to each of these factors, ranging from 0.5 to 10. The list is available at the local authority’s office.
Every authority that follows the unit area method of property tax calculation must provide the unit area rate for each colony.
What it means for you?
The area-based method is followed by states such as Delhi, Gujarat, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh and Tamil Nadu.
The area-based method has made the process of property tax collection simpler and transparent. Since it is easy to calculate, you can calculate property tax on your own.
In fact, the process of payment has also become easier. Most authority websites are now linked with payment gateways. For example, the Municipal Corporation of Delhi allows you to calculate your tax online and subsequently pay up online too. Some banks are also authorized to collect property tax.