A concentrated glance at the ‘Property Tax’ and Property Tax System in India

Posted By MyAdvo / February 23, 2016 / Property / 0 Comments

Understanding the purpose and concept of Property Tax

As the name signifies, it is a tax on property. Property, indeed, is a colossal term which include real estate i.e. buildings or lands attached to these buildings, shops, flats etc. This tax is different from the tax considered in the purview of Income Tax. Under Income Tax, it only tax the income generated from such owned property and not the property. Let’s not get confused by two taxes as both are entirely different.

The precise meaning of property tax implies a yearly amount paid by the property/land owner to the local governing body or the Municipal Corporation of that area. The scope of ‘property’ which arise liability under the purview of property tax includes:-

  • Self Occupied/Let out -Residential House
  • Building- Office or Factory
  • Warehouses
  • Flats/Apartments
  • Shops/commercial establishment

Who imposes Property Tax in India?

As mentioned earlier, it is the Municipality of any particular area who is authorized to assess, impose and collect the property tax annually or semi-annually.

What is the basis of calculation of Property Tax?

In India, the property tax is assessed on the basis of ‘Annual Value’. This annual value is calculated after determining the area, construction, property size, type of building and other pertaining factors. Hence, this value differs from property to property. Property Tax also includes Lighting Tax, drainage tax and Water Tax. Essentially, there are two broad categories under which it is estimated- Let out Property or Self Occupied Property.

Self Occupied Property

If it is used absolutely and fully for own residential purposes then Annual Value is 0. If the property is neither occupied nor let out, then annual value of the property shall be considered as 0.

Let Out Property

If the property is let out even for few months, the annual value shall be equal to the highest of the following values:-

  1. Municipal Valuation
  2. Fair Rent as assessed by IT department
  3. Rent Received

Allowable Deductions while estimating property tax

  • Interest on loan to construct, purchase or repair the property
  • Deduction up to 30% is allowed for repair and maintenance of the property.
  • Maximum Interest payable is limited to the maximum of Rs.1,50,000 ( if loan taken is on or beyond 1st April, 1999) and Rs.30,000 (if loan taken is after 1st April,1999)

Exemptions under Property Tax:

Following properties are exempted from the purview of Indian Property Tax:-

  • Properties owned by Central Government;
  • Certain type of vacant property including building or plot of land;
  • Places of religious worship, charitable institution, educational institutions, historical monuments, cremation grounds/graveyards, office of trade union associations, recreational buildings for free purposes etc.
  • Unauthorized buildings not listed in the Municipal register.

How Property Tax Collection is for the betterment of public services?

The Municipal Governments have laid down procedures for calculating and valuing property tax along with enforcement mechanisms on pertinent matters like arrears, delays, late payment or evasion of tax. These collections are used for constructing, repairing as well as maintaining roads, constructing Municipality or state government schools, buildings, hospitals or sanitation.

Currently Indian Property Tax System is facing significant challenges due to numerous shortcomings. It includes poor coverage of tax, increasing range of exemptions, low collection competence and difficulty in revising the tax base periodically. People often find lack of clarity on proper ownership rights and tenancy rights, difficulty in adopting market based valuation and rent control laws. Therefore, it also becomes important to consult property lawyers before buying or renting a property, to make sure past titles and taxes are taken care of.


In the end, it is important to bring reforms in the current property tax system of India and to improve revenue productivity for the state governments. The committees should be set to make analytical reports that can discuss the challenges and shortcomings in length and bring better results for the whole system as well as public.


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