[ecis2016.org] In this article, explained are the less-known aspects of building tax and the various ways it impacts the owner.
As property owners, you need to be acutely conscious of the expenses that you have to bear, as an asset owner. Apart from paying tax on holding this income-generating asset under the income tax (IT) laws, you are also liable to pay an annual property tax for the same. However, the treatment of land and building is different on both these counts. In this article, explained are the various less-known aspects of building tax.
You are reading: Key things you need to know about building tax
Are building tax, property tax and house tax the same?
The terms property tax, house tax and building tax may all mean the same thing but in India their usage is quite different. While property tax is the common name for the annual tax that the owner has to pay to the local authority, based on its annual rental value, the term house tax (this single term is widely used in the IT texts in India, also defined under the head ‘Income tax on house property’) is used to denote the deductions in your annual income, because of your property ownership and the estimated profits you might be earning through this income-generating asset. This estimated income is added to your annual income and then, tax is deducted on the whole amount according to the tax bracket you fall under.
While this usage is not common in India, building tax is also known as mileage tax in some nations.
[ecis2016.org] Property tax guide: Importance, calculation and online payment
How to calculate building tax
Based on various factors, municipal bodies assign an annual value to buildings to impose building tax. The different methodologies used in India by civic bodies to arrive at the annual value of buildings include:
Annual rental value system: Used by the municipal bodies in Chennai and Hyderabad, this method takes in account the monthly rent that a property has the potential to generate.
Earlier, the judiciary was of the view that for determining the base of property tax, the ‘fair’ rent as laid down in the Rent Control Acts of the respective state governments be the basis and not the actual or presumptive rent. Later, the Supreme Court, in various judgments, ruled the presumed rent for the basis for property tax calculations.
Unit area value system: Since the unit of calculation is based on per sq ft per month for a particular location / street and multiplied by a rate, this method of property assessment is called ‘unit area value’ method. Used by the municipalities in Ahmedabad, Bengaluru, Delhi, Kolkata, Hyderabad and Patna, this method attaches a per unit price to buildings, based on their built-up area or carpet area. The value to the units is attached, based on the three norms for location (principal main roads, main roads and others), the construction types (pucca with reinforced concrete roof, pucca with asbestos or corrugated sheet and others) and three usage categories (commercial/industrial, residential and others). This ultimately creates 27 different combinations.
The Patna Municipal Corporation was the first municipal body to move over to the presumptive area-based valuation taking into account the location, usage, built-up area and the type of construction.
Capital value-based system: Under this system, the market value of the property is the determiner for land tax.
Also see: How to calculate land value?
Rates differ from state to state, city to city and area to area
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Imposed by local bodies*, who rely majorly on building tax collection to finance their services to the general public, building tax (property tax) is calculated and fixed using different methodology by different authorities. The municipal body in Hyderabad, for example, does not use the same methodology for building tax calculation, as the municipal bodies in Delhi.
* Entry 49 in the State List of the Indian Constitution, specifies the ‘taxes on lands and buildings’, authorising municipal bodies to levy the tax as laid down in the respective state acts.
In most cases, structures in the city area have to pay a higher amount of building tax. The Maharashtra Tax on Residential Premises Act, 1974, for instance, provides for the levy of tax on residential premises in corporation areas, the flooring of which exceeds 125 sq metres in Greater Bombay and 150 sq metres in other corporation areas.
Vacant land, as well as building are taxed
Property tax must be paid for building ownership in our country, even if it lies vacant. For the longest time, land holding in India did not impose upon the owner any property tax liability. However, amid poor tax collection, experts floated the idea that it was crucial to include land and plots along with the built-up area in the tax base, even if the tax rate on the latter is kept comparatively lower. So, while agricultural land largely remains outside the tax base even now, states like Andhra Pradesh, Tamil Nadu, Punjab and Jammu and Kashmir have started to impose tax on vacant land in city limits.
Building tax for different types of buildings
Buildings of are varying types – residential, commercial, institutional, etc. Since they have varying income-generating capacities, their tax treatment is also different. In fact, properties are categorised under 70-80 heads and taxation differs for each head. Typically, the highest rate of building tax is charged from commercial buildings, because of their comparatively high income-generating potential.
Buildings that enjoy exemption from tax
As a welfare state, India does not impose any building tax on structures meant for public services. Structures that enjoy either a complete waiver or partial deductions on building tax, include places of religious worship, educational institutions, charitable institutions, ancient and historical monuments, burial and cremation grounds, government land and buildings set apart for free recreational purposes, offices of trade union associations, buildings and lands of urban development authorities constituted under the respective state government acts, institutions providing free medical relief and education and certain types of vacant lands and buildings, properties of war widows and gallantry award winners, foreign consulates and central government properties, including the luxury residences of important bureaucrats and politicians. These wide-ranging exemptions are often cited as the key reason behind the poor coverage of building tax collection in India.
This is why some states have made it mandatory for properties exempted from tax to pay a service charge. Separate returns for this purpose have to be filed by the owner.
How to apply for building tax exemption?
Those who want to claim first-time exemption from property tax, should apply to the commissioner with an application, along with all the documents and the return enclosing the service charge payable. If the exemption is refused, the applicant will have to pay the tax at the regular rates.
Penalty for non-payment of building tax
When compared to first-world countries, property tax collection in India is poor, primarily because low income levels continue to boost illegal constructions, greatly eliminating a large base of properties from falling under the purview of the civic authorities. Even as they try to bring more and more constructions within the legal fold, the civic authorities have also been taking various measures to penalise property tax defaulters.
In cities like Noida and Gurgaon, municipal bodies have, in recent years, launched measures to confiscate buildings if the owner fails to pay large property tax dues. In some cases, offenders might also face some jail terms for monetary offences. Such measures are, however, taken in case of repeat offenders only. Authorities typically start by severing the utility connections of households, to force the owners to clear the building tax.
Can I pay building tax online?
Apart from all big cities like Delhi, Mumbai, Bengaluru, Chennai, Hyderabad, Pune, Gurgaon, Noida and Kolkata, most state capitals and tier-II and tier-III cities have also established portals, which enable online payment of building tax. However, this is possible only after an owner registers himself on the portal, by providing vital personal and property-related information.
Key questions about building tax
Should I pay the building tax from the date of issue of the occupation certificate?
The owner has to pay the tax from the date of occupation or the date of completion, whichever is earlier.
Can I pay the property tax for an individual unit in an apartment for which neither the plan nor the occupancy certificate is obtained?
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Yes, you have to pay the property tax, irrespective of obtaining the plan or occupancy certificate. However, it does not guarantee the regularisation of the property.
What happens if you short calculate the building tax?
If you short calculate the property tax, you will have to pay twice the difference of tax as penalty, along with interest.
Can I file a revised building tax return?
You can file a revised return if you want to make any change in the return form applicable to you.
Is the occupier of a building also responsible to pay the tax?
If the owner fails to pay the property tax, the liability should be on the occupier to pay it.
For what transactions is the building tax receipt compulsory?
The building tax payment receipt is compulsory for the below mentioned transactions:
- For the registration of properties in sub registrar’s offices.
- For obtaining khata certificate.
- For obtaining the plan sanction from any competent authority.
- For obtaining trade licence, etc.
In case of apartments, should the super-built up area or the carpet area be considered for building tax calculation?
In case of apartments, the carpet area is considered for the building tax calculation.
What is built-up area?The built-up area of a building stands for the total area covered by a building above the plinth level. It includes all covered areas, like basements, mezzanine floors, balconies, garage areas, constructed boundary of swimming pools, fuel storage tanks constructed underground or above the ground, storage of merchandise in open space like timber, granite, bricks etc., stilts meant for parking and telecommunication and other towers and hoardings erected on the surface or top or any other open space of land or building. The built-up area does not include:
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FAQs
Are building tax and land tax different?
Building tax is the tax that municipal bodies impose on structures, while land tax is imposed on land without any structure. Most Indian states do not charge any land tax on agricultural land in rural areas.
Is property tax and building tax different?
Property tax and building tax are two terms signifying the same thing – the annual tax that municipal and civic bodies in India impose on property, based on its annual value.
Is property tax deducted from your income?
In addition to paying income tax on the money you are expected to earn through property ownership (which is added to your annual income and taxed according to the bracket you fall under), you also have to pay another tax – property tax to the municipal authority. Thus, a property owner is doubly taxed.
If a property is vacant, will it be counted as self-occupied or rented?
One can declare it as self-occupied, as long as it is not let out. Once it is let out, you should file a return and declare the changed status.
If my building is demolished and is under-construction, on what should I pay property tax?
If the building is demolished and whether or not the construction has commenced, tax has to be paid on the vacant land.
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