Property Tax
Having a property that you can call your property is the dream of almost every individual. As prices of property are skyrocketing, people prefer to take loans to buy the same. Story not come to an end after buying a property, one is also liable to pay property tax on the property purchased.
Concept of Property Tax
Property tax is a financial charge which is imposed on an individual or an entity by the State government to fund various public expenditures. Another name of property tax is the mileage tax. It is a financial charge which applies to a property that one is liable to pay. Tax is charged by the governed authority of the jurisdiction in which property is located. It is not necessary always to make payment of property tax to the governing authority, one can also pay tax to the National Government or Municipality.
Property is defined as all the fixed tangible estates which are under the ownership of a person concerned. Estate can be anything of building, land or houses. The core concept of property tax has not changed and is the same throughout the world.
History of Property Tax in India
In India, the system of direct taxation has been in force in different forms from ancient times. One can find references for the property tax in Arthashastra and Manu Smriti. In ancient times, kings charged some amount of taxes from the local farmers. The amount of tax collected from them was used in the form of the kingdom treasury. British Government introduced a new method of tax collection. They appointed a person who would do tax collection on behalf of the British Government, as a result of which the system of formal tax collection was brought into the real world.
What are changes introduced in Property Tax in budget 2020?
House owners who have taken loans to purchase homes up to Rs 45 lakh are now eligible to claim an additional tax deduction of Rs 1.5 lakh. This will be in addition to the Rs 2 lakh deduction which is available to house owners who brought affordable housing on loans borrowed up to March 31, 2020. This date is extended for one more year and made it to 31st March 2021.
TYPES OF PROPERTY
The Government of India collects Property tax based on some terms and conditions. In India, property is divided into four categories that are as follows:
1. LAND
It is the most common form of property among different forms. Land includes only land without any kind of construction or modification.
2. IMPROVEMENTS MADE TO THE LAND
It is the second form of property is the IMPROVEMENT MADE TO THE LAND. Under this, all the changes made by a man in the land are included.
3. PERSONAL PROPERTY
Under the personal property, cars or trucks which are the man-made creations but movable are included in the personal property.
4. INTANGIBLE PROPERTY
This includes the objects which are not in existence, i.e. it cannot be seen nor touched. This includes patents and royalties
Advantages of the Property Tax
- Reliable and Stable revenue source: The value of the property is less susceptible to short term economic fluctuations as compared to any other major revenue sources.
- Property tax is difficult to evade: It ensures a major portion of population pays their due to property tax.
- Property tax system are more transparent as compared to other taxes - Property owner has a right to examine the assessments through a bill that shows their entire liability which makes the full magnitude of tax obvious. But this is not the case with the small amount of taxes collected as part of the purchase price in the form of sales tax or they are withheld from pay throughout the year along with many other items in the form of income tax.
Disadvantages of Property Tax
- There are large lump-sums payments are being associated with property tax which is considered as a major disadvantage. Property tax falls in the purview of unrealized capital gains which are not related to cash flow. It becomes difficult for a company to make a payment that is property rich and cash poor.
- Often misunderstanding developed of the relationship between appraised value and tax. This is a disadvantage when comparison made to sales tax or income tax. As these both taxes are fixed-rate tax. The problem increases when tax jurisdictions permit irregular or long periods between reappraisals as there is a possibility that all sudden, applicable tax might increases.
- Since assessment ratios differ between the property classes, in that case, property tax appraisal might be perceived as inequitable. Lack of adequate state or local oversight may demonstrate poor uniformity among comparable properties. It is a prime indicator of inequitable treatment.
Procedure to pay Property tax via online
In India, property tax calculation done based on property location. The amount of property tax differs from state to state. There is no fixed formula to do the calculation of property tax as different corporations use a different method to calculate property tax. The outlay of property remains the same always.
- Firstly, an inspection of the property is carried out by doing the determination of the place where the property is located.
- Secondly, in doing the calculation of property tax is to check the occupancy status which means whether the property is self-employed or rented out.
Some other considerations which need to keep in mind while calculating the amount of property tax includes:
Type of property: Residential or commercial
Amenities associated with the property: Place of car parking, a feature of rainwater harvesting, etc.
Type of construction: Multi-storied, Single Floor or pukka or kutcha house.
Determination of all these things taken by Municipal Corporation, as they use the formula for calculating the amount of property tax to be paid by the individual.
The formula is –
Property tax= base value of the property x floor factor x type of building x age factor x built-up area x category of use.
Interest on Property Tax
When the individual fails to make payment of property tax on time, then a fine is to be charged for making late fee payment. Fine is generally equal to a certain percentage of the amount of taxes that are due. The amount of fine varies from state to state. Optimum amount of percentage charge for late fine ranges from 5% to 20%.
There also exists a case when a state or Municipal Corporation can even disregard the concept of charging of late fine on the amount of property tax due.
Property Tax and Income Tax
Property tax is levied as per Section 80 C of the Income Tax Act, 1961. Individuals who are purchasing a new house can claim tax deduction under Section 80C of the Income Tax Act. Such deductions are available for the registration charges that are payable on stamp duty or payable on the house. These costs alone constitute about 10% of the cost of property and deduction available as per Section 80 C is enough for individuals for saving taxes.
Section 80C is that the total amount of deduction available is limited to Rs.1.5 lakhs. Moreover, any additional expenses which are incurred on the transfer of property can also be claimed as deduction under this Section. However, any deductions available are applicable only in case of the purchase of a new property.
Capital Gains Tax and Property Tax
Profit earned from the sold property is entitled to be taxed as Capital gains tax. If a new house is being purchased using the money of property sold within two years of sale, then, in that case, house property will get an exemption from paying Capital Gains Tax.
