With the cost of property skyrocketing in India, owning property in India is considered as one of the smartest forms of investments. Every property is an asset which can be taxed under the law. The owner of the property is required to pay taxes accruing to the property that he/she owns. The property tax is paid to the state government, central government or the municipal corporation depending on the regulations and guidelines followed by the state. 'Property' here refers to all the tangible real estate assets that are owned by an individual/entity.
History of Property Tax in India
The tax system in India is as ancient as Manusmriti and Arthashastra, which speak about the different tax measures taken during that time. The Mughals and British also had a streamlined way of collecting taxes, including land taxes, which is the tax levied on the property or land that is owned by farmers or landowners.
Types of Property
Property is classified into four categories in India. The types of properties in India are described below
It is the most basic property and it is considered to be property without any construction or improvement.
Improvement in Land Property
When improvements are made in the land like creations or modifications, the value of the property increases.
Personal property includes human-made objects that are movable like cranes, buses, and cars
Property Tax in India is paid on the 'real property' which consists of the improvements on land and land where the government decides the value of each property. The municipality of an area assesses the property tax on an annual or semi-annual basis. The tax collected through this source is used to repair roads, maintain government buildings, to improve the water supply, etc.
Property tax varies from location to location since the tax levied differs depending on how the municipality of the area assesses the property tax.
Income on house property
It is important to calculate income on house property to calculate the total amount of tax that needs to be paid to the income tax department. Income on house property is the income earned by the assessee by leasing out his/her property. In case the property isn’t leased out, the owner needs to pay an amount based on the rent that is equivalent to the ‘deemed rent’ i.e., the possible rent which could be paid if the property is let out.
The income from house property is calculated along with a person’s income tax, only if it satisfies three important conditions:
- The assessee is the owner of the property
- The property must consist of a house, buildings or land
- The property is used for any purpose apart from running a business or profession
Deductions from house property before levying a tax
While calculating the net income earned by letting out a property, under section 24 of the income tax Act can help one to avail various deductions on the net taxable amount from the house property income.
These deductions include:
The standard deductions allow the assessee for a deduction of up to 30% on their net annual income from the property.
Deduction of municipal taxes
Any tax paid to the government during the financial year (such as house tax) is liable for deductions from the gross annual value of the property
Deduction on interest paid on home loans
Any interest paid on construction, repairing or acquiring the property is deducted from the net income tax on that property
What are the exceptions under Section 24
- If the house or property is not occupied by you, then you can claim an exemption for the amount that you're paying in the form of interest.
- You can claim a tax exemption up to 2 lakh Rupees if the property is not occupied by you if you are staying in a separate property or live in a different location due to employment.
- The brokerage charges and commission do not fall under the tax deduction.
- The house construction must be completed within three years to claim the maximum amount of deduction on the interest amount. If you don't complete the installation of your house within three years, then you will be eligible for only 30,000 Rupees of tax deduction
How is Income From House Property Computed?
Only the Net Annual Value of the house is taken into account while computing the Income from house property. The Net Value of the house is calculated by deducing the municipal taxes from the gross value of the house.
How to file Property Tax Online
Property Tax in India can be paid online. Each state and municipal authority has an online portal where the assessees can pay their Property Tax online. Here is a list of the points you should remember while filing the property tax online
- If you haven't filed the property returns for the previous year, then you need to file the property tax of present year along with the property tax of earlier years.
- Additional depreciation cannot be claimed for two periods in a row.
- If you have filed a revised return, then the current year must be the basis of the revised return.
- If there is still a balance after filing the tax returns, it can be paid through DD or cheque.
- If you're paying the property tax in two installments then the forms used for current and previous years are the same.
- If you're making payments for multiple years, then challan should be generated for each year separately
- If you default in making the payment, you'll be charged an interest rate of 2%
- If the payment mode is via DD or cash, then a receipt must be generated and submitted during the filing of tax exemption.
How can I pay property tax online?
Individuals can follow these steps to pay their property tax online
- Log in to the official website of a municipality or the city corporation.
- Navigate to property tax and choose the Payment option
- Choose the category under which your property falls
- Choose the assessment year
- The assessee is then required to fill up the Property Identification Number and provide relevant documents pertaining to the property
- Once the documents are scanned and submitted the payment can be made via online or offline modes
- The assessee can take a print out of their challan once the payment is made
Capital Gains on Property
Capital Gains tax is the tax levied on the profit gained from a property sale. Capital gains tax can drain a lot of wealth if they're not managed properly. A simple method to avoid paying hefty capital gains tax is to purchase a new house from the sale proceeds of the property sale. Such property must be purchased within three years of the property sale.
Who decides the amount of property tax?
Property tax is determined by the local administration or Municipal Corporation, urban local bodies and small organizations.
Is it legal for tenants to pay property tax?
In some countries, it is legal for the tenants to pay the property tax, but in India, it is illegal for the tenants to pay property tax.
How can I get an exemption from property tax?
You can get a property tax exemption based on your age, net income, type of property, the location of a property, the value of taxable property and the history of public service. If the land that you own is vacant, then you don't have to pay property tax on it
What if the value of my property is lower than my property assessment tax?
It is not possible for the property assessment tax to be higher than the value of the property, if that is the case, you might not be aware of the value of the property for which you must get a clarification from the local administration or the municipality.
Can the property tax payments be made online?
The mode of payment of property tax varies from location to location. If the municipality allows the property tax payments online, then you can do it.