Everything You Need to Know About Property Tax and How is it Calculated

Property tax is the annual sum that property owners are required to pay to state municipal authorities. This amount is used to maintain civic amenities such as roads, drainage systems, parks, and street lights in the surrounding area. Property taxes are typically levied on all types of real estate buildings, with the exception of central government properties, vacant properties, and vacant plots without any building attached.

Types of Property

Real estate can be classified into four different categories:

• Land: Without any construction
• Land with improvement: Immovable constructions made on the land like houses, offices, buildings etc. 
• Personal Property: Man-made movable assets like buses, and cranes
• Intangible assets

Only land and land with improvements are subject to property taxation among these four types of properties. The property rates are assessed by the municipality of the area, which then determines the property tax, which can be paid annually or semi-annually or any prescribed tenure.

Different Methods of Calculating Property Taxes

The local municipality may use any of these three methods for calculating property tax:

1. CVS or the Capital Value System

The local government calculates property tax as a percentage of the property’s market value based on its location. This system is currently followed in Mumbai.

2. UAS or the Unit Area Value System 

This property tax calculation is based on the price (per foot) of the area of the property. This price is based on the expected returns from the property which depends on its location, use, and price of the land. This system is currently followed in New Delhi, Bihar, Kolkata, Bengaluru, Hyderabad, etc.

3. RVS or the Annual Rental Value System or Rateable Value System

This kind of Property tax calculation is done on the derived rental value of a property. This price is decided by the municipality depending on the location, size, amenities etc. This system is followed in Chennai and in some parts of Hyderabad.

Basic Property Tax Calculation

Property tax is calculated differently depending on the state or municipal authority, the type of property, the occupational status – rented or self-contained, the surface and carpet, the number of floors of the structure, and so on.

Real estate owners can calculate the amount of property tax they must pay by visiting the website of their corresponding municipal corporation. To calculate a preliminary tax figure, relevant property details such as area, floor, and so on are required. The standard formula followed when calculating property tax is:

Property tax calculation = property value × built area × age factor × building type × use category × floor factor.

Property Tax Exemption? 

The Civic authorities / Government usually exempts these properties from taxes: 

• Central government buildings
• Undeveloped land
• Vacant property

One may claim property tax exemptions based on the following factors:

• The age factor, especially for senior citizens
• Location and income
• Type of property and public service history

How to Pay Property Tax?

People can pay their property taxes at their local municipal corporation office or online at the municipal authority’s website. 

Property taxes are due once a year. The burden of timely payment falls on the owner, not the occupant of the property. Late payments incur penalties ranging from 5% to 20%.