The income raised from the property tax is used to improve the infrastructure and increases the quality and level of services provided by the municipalities, municipal councils and municipal corporations.
A tax is a compulsorily payment(usually a percentage) levied on income, property value, land value, sale of goods and services, etc. paid by the people to the government. They are an important and largest source of revenue to the government. The government uses the money collected from taxes for various projects for the development of the nation. The Indian tax system, which is well structured, has a three-tier federal structure. TheIndian tax structure consists of the central government, state governments, and local municipal bodies. There are two types of taxes in India—Direct tax and Indirect tax. The direct tax includes income tax, gift tax, corporation tax, property tax, etc., while as indirect tax includes custom duty, service tax, sales tax, goods and services tax, VAT, etc.The Central Government of India imposes taxes such as customs duty, central excise duty, income tax, and service tax. The state governments impose income tax on agricultural income, state excise duty, professional tax, landrevenue and stamp duty. The local bodies are allowed to collect Octroi, property tax, and other taxes on various services like water and drainage supply. The fast urbanization in India has created a great pressure on infrastructure and services, especially over the last 10-15 years. Due to this, most of the Urban Local Bodies (ULBs) are unable to meet the growing demand of the people forthe betterurban services like construction of roads and streets, development of parks and playgrounds, slum improvement, sewerage,drainage, checks weights and measure etc. due to inadequate level and slow growth of municipal revenues. Property tax—which is also called as House Tax, Real Estate Tax or Municipal Tax—is a direct tax which is imposed on the value of the property of an individual. It is the amount of money paid by the property owners to the municipal corporation, municipal council or the municipal committee of the area where the property is located. Here property means all tangible real estate property, i.e., an individual’s house, commercial house or office building that the owner has rented to someone else.In other words, property tax is a tax that is measured by the value of the property a taxpayer possesses. This is one of the taxes levied by the local municipal bodies of every city, town etc. These taxes are levied in order to provide and to maintain the basic civic services like construction of roads and streets, drainage, cleanliness in the area, water supply, maintenance of local roads and other civic facilities.Property tax allows the municipal bodies to get revenue, for funding all the services that it provides. It is one of the major sources of revenue for municipal bodies. If one does not pay the property tax, then, the municipal body can refuse to provide the water connection or other services and it may also initiate legal action, to recover the due amount. Under this tax, all owners of residential or commercial properties are subject to property tax.This tax is levied by the concerned governing authority of the jurisdiction in which the property is located. The component and nature of property tax varies from city to city, from town to town, depending upon the provisions of prevailing Municipal Act in the respective state in India. The amount of property tax collected by the government is used for the development and maintenanceof various public facilities such as roads, parks, sewage systems, parks, dispensariesand many other services. This tax may vary from one location to another and there are various other factors that determine the amount of property tax payable; these include location of the property, size of the property, whether the property is under-construction or constructed, gender of the property owner – there may be discounts for female owners, Age of the property owner – there may be discounts for senior citizens, civic facilities provided by the municipal body in the locality, whether residential property or non-residential property, etc. Under property tax, the local municipal authorities or corporations of the particular region requires or performs an assessment of the monetary value of each property, and tax is estimated in proportion to that value.A property owner subjected to property tax has to pay the same taxapplicable on the property annually. The different municipal authorities are using different property tax calculation methods. Property tax is calculated, according to the recent property valuation conducted by the municipal body and only the owner of the property is liable for paying the property tax. Hence, if you are a tenant, you need not be concerned about it. Certain establishments, such as places of worship, government buildings, foreign embassies, etc., are usually exempted from the property tax. Clean land is also exempted from property tax charges. Property tax as percentage of GDP is 0.20%in India and in USA and Canada it is 4% and 3%, respectively.
Calculation of Property Tax: The municipal authorities of the concerned areas calculate the property tax in proportion to the estimated value of the property.The property tax in India is calculated while keeping in mind certain factors. The method to be used for the calculation of this tax may vary from one municipal corporation, municipal committee and municipal council to another.Property tax in India can be calculated in three ways:
1. Capital Value System (CVS): Under this method, property tax is calculated by the local government as a percentage of the property’s market value based on the location of the property. This market value is revised from time to time. Mumbai is currently using this system.
2. Unit Area Value System (UAS): According to this method,the amount of property tax you pay is based on the price per square foot of your property or per unit price of the built up area of the property. This price is determined by the expected returns from the property, which are based on the location of the property, use of the land and land price. This system is currently in use in the municipal authorities of New Delhi, Bihar, Kolkata, Bengaluru, and Hyderabad, among other places.
3. Annual Rental Value System or the Rateable Value System (RVS): This type of property tax calculation is based on a property’s rental value. The municipality of the concerned area decides this rent keeping in mind certain factors like location of the property, size, amenities, and so on. This system is used in Chennai and parts of Hyderabad.
Recently on 21st February 2023, the Jammu and Kashmir Government decided to impose the property tax in the Union Territory from 1st April 2023. Thus, it became the last region (State/ UT) in the country to impose it. It was decided that the tax will be levied and collected on the properties situated within the Municipal area only. The property tax rate on residential property would be 5% of the taxable annual value; while on non-residential property, it would be at 6% of taxable annual value. The tax rate will be applicable to revision once three years from the date of imposition of Property tax; i.e., property tax decided on 1st April 2023 will remain in force till 31st March 2026. Under this tax, the total annual value will be calculated by multiplying the nine different variables related to the characteristics of the property like type of municipality, built area, land value in line with the J&K Preparation and Revision of Market Value Guidelines Rules, 2011, as on the first day of the block, the number of floors, usage type, construction type, age of the property, given slap of the area, and the occupancy status. The slab factor for an area of up to 1,000 sqft is zero, which would result in no tax for such property. The imposition of property tax in J&K will indeed increase the revenue of the local authorities and, therefore, it is necessary that the revenue generated from the same tax may be utilize judiciously for the betterment of the common masses, so that development takes place smoothly and efficiently.
(The author is Assistant Professor, Economics, at Govt. Degree College Sogam (Lolab), Kupwara. The views, opinions, facts, assumptions, presumptions and conclusions expressed in this article are those of the author and aren’t necessarily in accord with the views of “Kashmir Horizon”.)
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