What is Property Tax, How to Calculate & Pay Property Tax Online?

Buying a personal property is a dream come true for many. However, becoming a homeowner comes with its fair share of responsibilities, including managing property taxes. In this guide we have covered everything you need to know about property tax, how to pay property tax online, how property tax is calculated, what are the factors that influence property tax rates, and so on.

Table of Contents:

• Meaning of Property Tax and House Tax
  • What is Property Tax?
  • What is House Tax?
  • Property Tax vs House Tax: Basic Differences
• How to Pay Property Tax Online
• How Property Taxes are Calculated
  • Annual Value System (AVS)
  • Capital Value System (CVS)
  • Unit Area Value System (UAVS)
• Factors Determining the Amount of Property Tax Payable
• Optimizing Property Tax Deductions for Enhanced Savings
• Understanding Property Capital Gains Tax
• Exemptions on Property Taxes

Meaning of Property Tax and House Tax

What is Property Tax?

Property tax is a mandatory obligation for owners of tangible assets such as residential houses, commercial buildings, offices, and land. These taxes are payable to government bodies like the municipal corporation or panchayat. They can be paid annually or semi-annually of convenience.

The property tax collected is used for local infrastructure, public services, and other community development initiatives.

What is House Tax?

House tax is a subset of property tax, that is specifically levied on residential properties. This tax is collected by local municipal bodies and used to fund local public services, which is more residential-focused such as local road maintenance, water supply, and drainage systems.

The amount of house tax a property owner pays is based on several factors, such as:

• The built-up area of the house.
• The location of the property.
• The age of the property.
• The construction type of the property.
• The market value of the property.

Property Tax and House Tax: Basic Differences

Also read: To Rent or To Buy a Home: What’s Best for You?

How to Pay Property Tax Online

In today’s digital age, paying property tax online has simplified the process significantly. Here's how to do it:

Step 1 : Visit the Municipal Corporation Website - Start by navigating to the official website of the municipal corporation or local authority of the area where your property is located.

Step 2 : Find the Property Tax Section - Once on the website, look for the ‘Property Tax’ section. It may be listed under services, payments, or citizen services.

Step 3 : Select the Payment Option - Click on the option for property tax payments or something similar, like “Pay your Property Tax” or “Property Tax Payment”.

Step 4 : Enter Property Details - You may be required to enter details such as Property ID, Assessment Number, Owner Name, or Address. This information is necessary to retrieve your property tax records.

Step 5 : View Property Tax Details - Once you've entered the necessary details, you should be able to view the property tax due for your property. It's wise to double-check these details to ensure accuracy.

Step 6 : Choose Payment Method - Select a payment method that suits you best. Most municipal websites in India accept various forms of payment including credit cards, debit cards, net banking, and UPI.

Step 7 : Complete the Payment - Make the payment and also ensure that you receive a confirmation message or email after paying property taxes.

Step 8 : Save the Receipt - It is crucial to save the receipt for your records and future reference. Sometimes, the receipt may be sent to your registered email address.

Step 9 : Keep a Follow-up - Occasionally, due to technical glitches, the payment may not get updated immediately in the municipal records. Keep a check on the same and if needed, contact the municipal authorities with the payment receipt for an update.

Note: To avoid penalties or interest on late payment, it is crucial to pay property taxes within the specified due dates set by the municipal corporation.

Also Read: How to Verify the Property Details

How Property Taxes are Calculated in India?

In India, property taxes are calculated based on guidelines set by the local municipal bodies, and the methods can vary from one municipality to another. Generally, there are three primary systems used to calculate property tax in India:

#1 Annual Value System (AVS)

Under this system, the property tax is calculated based on the annual value of rent or notional rent that the property can earn. The formula for calculation is:

Property Tax = (Annual Rental Value) x (Tax Rate)

This is not necessarily the actual rent received but is an estimate of the rent that the property could attract.

#2 Capital Value System (CVS)

This system calculates property tax based on the market value of the property. The general formula is:

Property Tax = (Market Value of Property) x (Tax Rate)

The market value is the price at which a property could be bought or sold in the open market. The municipal corporation sets a rate, and the tax is calculated as a percentage of the market value of the property.

#3 Unit Area Value System (UAVS)

Under the Unit Area Value System, properties are assigned a per unit value based on factors such as location, usage, and occupancy status. The formula is usually:

Property Tax = (Built-up Area) x (Per Unit Value) x (Tax Rate)

The property tax is calculated by multiplying the per unit value with the built-up area of the property.

Note: In addition to these methods, some municipal corporations use a combination of these systems or employ other factors in the calculation. The tax rate and other parameters for calculating property tax can also change periodically, so it's important to refer to the most current guidelines of paying property tax in your state/city.

Factors that Determine the Payable Property Tax Amount

• Assessed Value of Property: The most significant factor is the assessed value of the property, which includes the value of the land as well as any structures built on it.

• Location: Properties in urban or high-value areas typically have higher house tax rates compared to those in rural or lower-value areas.

• Property Classification: The classification of the property, whether it’s residential, commercial, industrial, or agricultural, can affect the tax rate.

• Size and Dimensions: Larger properties generally attract higher taxes due to their higher valuation.

• Age of the Property: Some jurisdictions may have a sliding scale where older properties are taxed at a different rate compared to newer ones.

• Improvements or Renovations: Upgrading a property or making improvements can increase its value, which in turn may affect the amount of property tax payable.

• Type of Building: Different types of buildings (e.g., single-family residential properties, multi-family residential properties, condominium) might be subject to different tax rates.

• Tax Rate: The local tax rate, sometimes called a millage rate, is applied to the assessed value of the property to determine the tax amount.

• Exemptions and Deductions: Certain property owners, such as senior citizens, veterans, or people with disabilities, might qualify for exemptions or deductions, which can lower the tax burden.

• Special Assessments: In some cases, special assessments may be levied for specific local projects or improvements, such as street repairs or new sewer lines, which can affect the total property tax amount.

• Civic Amenities and Services: The extent and quality of civic facilities provided in the area can also play a role in determining property taxes.

• Owner-Occupied vs. Non-Owner Occupied: In some jurisdictions, properties that are not owner-occupied (e.g., rental house property) may be taxed at a different rate.

Also read: Top Questions to Ask a Real Estate Agent Before Buying a New House

Optimizing Property Tax Deductions for Enhanced Savings in India

Property tax in India may be a substantial burden. However with a strategic approach to understanding and leveraging the tax deductions available can result in considerable savings.

1. Understand your property tax calculation: Learn how your local municipality determines your property tax, taking into account the property's location, size, type, age, and usage.

2. Identify special deductions: Some areas offer tax deductions for specific categories of homeowners, such as women, senior citizens, or people with disabilities. Find out if you're eligible.

3. Claim standard deductions: Indian tax laws allow a 30% standard deduction on the net annual value of your property to cover maintenance and repair costs.

4. Make the most of home loan deductions: If you're repaying a home loan, claim deductions on the interest paid under Section 24 and on the principal repayment under Section 80C of the Income Tax Act.

5. Pay on time to earn discounts: Many municipalities offer discounts to homeowners who pay their property taxes on time.

6. Check for eco-friendly property rebates: If your property uses renewable energy or other green initiatives, you could be eligible for property tax rebates.

7. Utilize Section 24 deductions: Homeowners can claim a deduction of up to INR 2 lakhs per year on the interest component of home loan repayments for self-occupied properties.

8. Leverage Section 80C deductions: Claim deductions of up to INR 1.5 lakhs per year on the principal repayment of your home loan, as well as on related expenses such as stamp duty and registration fees.

Remember, it's always a good idea to consult with a tax professional or advisor to ensure you're taking full advantage of all the property tax savings opportunities available to you.

Understanding Property Capital Gains Tax

Property capital gains tax is a tax imposed on the profit you make when selling a property that has increased in value since its purchase. The tax rate for capital gains varies based on the holding period and the type of asset.

Types of Capital Gains

Capital gains can be classified into two types: short-term and long-term.

• Short-term capital gains: If you sell the property within a holding period of less than two years, it is considered a short-term capital gain. Short-term capital gains are usually taxed at a higher rate.

• Long-term capital gains: If you sell the property after holding it for more than two years, it is considered a long-term capital gain. Long-term capital gains are generally taxed at a lower rate.

Note: Capital gains tax need to be reported in your income tax return for the relevant financial year in which the property was sold to avoid penalties.

Exemptions on Property Taxes

Property tax exemptions are provisions that provide relief to certain property owners by exempting them from paying a portion or the entire amount of property taxes. These exemptions are typically granted for specific reasons or categories of properties, which includes:

• Senior Citizens: In many jurisdictions, senior citizens are often eligible for property tax exemptions or concessions. This is to ease the financial burden on individuals who may be retired and living on a fixed income.

• Persons with Disabilities: Individuals with disabilities may be eligible for property tax exemptions, as they might have additional financial constraints.

• Ex-Servicemen and Families of Martyrs: Ex-servicemen, as well as families of martyrs from the military, police, or other defense and security services, may be granted property tax exemptions as a mark of respect and support for their service.

• Educational Institutions: Properties used exclusively for educational purposes, such as schools and colleges, are often exempt from property tax, especially if they are not-for-profit institutions.

• Religious Properties: Properties used exclusively for religious purposes, such as temples, mosques, churches, and gurdwaras, are typically exempt from property taxes.

• Charitable Institutions: Non-profit organizations and charitable institutions might be eligible for property tax exemptions if they meet certain criteria set by local authorities.

• Government-owned Properties: Properties owned by the government or government entities are usually exempt from property taxes.

• Agricultural Properties: Land used solely for agricultural purposes is often exempt from property taxes. However, this can vary and sometimes there might be separate agricultural land taxes.

• Vacant Land: In some jurisdictions, vacant land or unimproved properties may have reduced property taxes or may even be exempt.

• Historic Properties: Some jurisdictions offer property tax exemptions or reductions for historic properties, particularly if the owner agrees to preserve the historic nature of the property.

• Green Building Incentives: In certain areas, properties that meet specific environmental or sustainability criteria might be eligible for property tax incentives or reductions.

Also read: The Pros and Cons of Owning a Home

Gaining a comprehensive understanding of property tax is paramount for first-time homeowners, especially when it comes to tangible real estate property. By familiarizing themselves with the intricacies of property tax calculation, available deductions, and the implications of capital gains tax under the Income Tax Act, homeowners can make informed decisions and safeguard their financial well-being.

To navigate this complex landscape, it is advisable for homeowners to seek guidance from tax experts or property consultants who can provide personalized advice tailored to their specific situation. This ensures compliance with tax regulations and maximizes the benefits available to them.

Moreover, as responsible citizens and homeowners, timely payment of property taxes is not only a legal obligation but also a way to contribute to the development and well-being of the community. By fulfilling their tax responsibilities, homeowners actively participate in the growth and maintenance of essential public services that benefit everyone.