How property taxes are calculated?
Property taxes are an important source of revenue for the government and they varies from one place to another. There are different methods that are used for the calculation of property taxes. However, the basic formula which is used in calculating property taxes remains the same and it is given below :
Property tax = Base value × Building type × Category × Floor factor × Age factor × Built-up area
Property tax in India varies from one state to another and the location of the property plays a very important role in deciding the tax rate. The property is assessed and there are certain things are noticed such as detailed location, occupancy status (rented or self-occupied), type of the property (land, residential or commercial), floor space index, year of construction, amenities provided, carpet area, and type of construction. After the assessment is done, The concerned authority the formula suitable for it to calculate property taxes. The formula used by agencies differs from agency to agency.
Methods used for the calculation of property tax :
There are three different methods generally used by the authorities for calculating property taxes. These methods are given below :
- Capital Value System (CVS): This system is used for the valuation of property tax in Mumbai. In this system, A certain percentage of the market value of the property is calculated as the property tax. The location plays a major role in determining the market value of the property.
- Unit Area Value System (UAS): This method is used for calculating property taxes by the Municipal corporation in major cities like Bengaluru, Hyderabad, Delhi, Patna, etc. Under this method, The tax is decided on the basis of the unit price of the built-up area of the property. The unit price depends upon the returns expected from the property. Location, nature of use, and the price of the land decide these expected returns. The product of the total built-up area and the price is used to calculate the property taxes.
- Rateable Value System (RVS): It is also known as the Annual Rental Value System and is used in Chennai and some parts of Hyderabad for calculating property taxes. This system depends on the rental value obtained from a property per year and this value is used to calculate the property tax. The rental value is determined by the municipal authorities and depends on things such as size, value, location, amenities, and proximity to important places.
The property tax in India varies from one state to another and any delay in payment of these taxes can lead to fines. The fines differ from 5% to 20% of the tax amount depending on the state policies. There are also some states where the penalty is not charged over the delay in the payment of property tax. Properties such as educational institutions and medical establishments are also exempted from property taxes. The calculation of the property tax in India is not a very complicated process and you can also get tax benefits as per Section 24 of the Income Tax Act.