What Are the Different Types of Property Taxes, and How to Calculate Them

Among the different types of taxes paid by people in India, property tax is perhaps the highest. It is the tax people pay for owning a property and is a major source of income for the municipal government operating at the city level. Property tax is levied on all tangible assets owned by an individual, including a house, a commercial space, or even any space rented to a third party. People must pay property tax online or offline once every year to the local government. The money is used for building and maintaining public amenities like clean drinking water supply systems, roads, sewage systems, hospitals, schools, and much more.

Types Of Property Tax

The types of property taxes in India are based on the categorisation of property by the government. Currently, taxes are classified into four main types, explained briefly as follows.

Personal Property: It refers to any tangible and movable property owned by an individual, such as vehicles, electronic devices, jewellery, etc.  

Land: It refers to any piece of land with no construction done or any kind of improvement made by the owners.

Improvements Made To Land: These include any changes made to the land through construction or other means to enhance its value.

Intangible Property: Any patents, trademarks, and royalties individuals own form part of their intangible property.

Calculation Of Property Tax

The property tax people have to pay differs across India, although the basic computation formula is the same. While each civic body uses different methods to calculate the property tax, all of them use the following factors to assess the property's value.

• The location of the property
• Whether the property is occupied by the owner or rented out.
• Type of property, i.e., whether it is residential, commercial, or core land.
• The age of the property, i.e., the time elapsed since its year of construction.
•  Whether the property is a single-story or multistorey and has a pucca or kuccha construction.
• The floor space index of the property.
• The overall carpet square area of the property.

Methods Used For Calculating Property Tax

As mentioned before, municipal bodies across India use different methods to calculate property tax. The most common of these methods are explained in brief as follows.

Capital Value System (CVS)

This method for calculating tax considers the property's market value. The government determines this value based on where the property is located. The tax is calculated as a percentage of this value and tends to change each year. This is because the value of the property changes according to market conditions, and the government needs to revise and publish the property value accordingly.  The municipal corporation of Mumbai follows this method of tax calculation.

Annual Rental Value System (ARVS) or Rateable Value System (RVS)

As the name indicates, this method factors in the property's rental value for calculating the tax amount. The rental value is decided according to the location, size, and condition of the property as well as its proximity to famous landmarks and other amenities. The value thus obtained may not necessarily be the same as the actual rent collected from the property. The municipal corporations in Chennai and parts of Hyderabad follow this property tax calculation method.

Unit Area Value System (UAVS)

It is a modern method for calculating property tax that does not rely on the market or rental value of the property. Hence it is considered to be the most accurate method for calculating property tax. Under this system, the per-unit price of the property is evaluated by factoring in its age, location, and usage. The value thus obtained is multiplied by the build-up area of the property to obtain the final tax amount. The method has been adopted by the municipal corporations of Delhi, Hyderabad, Bengaluru, Patna, and Kolkata for calculating property tax.

Importance And Benefits Of Paying Property Tax

Paying property tax is important as it provides the local government bodies with the necessary funds to provide better facilities and amenities to the citizens. Non-payment of property tax also results in the municipalities levying fines and penalties on the property owners, which can range anywhere between 5% and 20% of the tax amount. Paying property tax also ensures the following benefits.

• It establishes the legal ownership of the property, which can come in handy for resolving any legal disputes.
• It simplifies the process of availing of a loan as the property tax receipt acts as a vital document for lenders.
• It assures easy access to various public facilities and amenities offered by the government, which are pretty affordable.

Conclusion

Paying property tax helps improve the living standard of life in the area. It ensures the proper development of various public facilities and amenities, which, in turn, enhances and proves beneficial for people and the country as a whole.