Property tax, also known as house tax, is levied by municipal authorities on real estate. It is usually charged annually. However, some municipal bodies might offer semi-annual or quarterly payment options.
This kind of tax is paid by real estate owners within a particular municipality’s jurisdiction, and is an ad-valorem tax, which means the more valuable the property, the more they have to pay.
The proceeds from the tax receipts are considered to be the main source of revenue for most local governments, which are then utilised for maintaining and improving the local civic amenities such as parks, streets, sewage systems, and other public infrastructure, according to Investopedia.
How to calculate property tax?
Each municipality may have its own method to calculate property tax, as it is based on local laws and regulations. However, according to Ujjivan Small Finance Bank, a generic formula used by many municipalities is:
Property Tax = (Base Value × Built-Up Area × Age Factor × Type of Building × Category of Use) – Depreciation.
In the given formula, the base value refers to the cost per sq. ft. for properties in a particular area. Meanwhile, built-up area means the carpet area, along with the walls and other areas of the property.
The age factor looks at how old the building is, with newer properties usually attracting higher taxes. The type of building refers to whether it is residential, commercial, or industrial.
The use category indicates whether the property is self-occupied, rented, or vacant. Depreciation is subtracted based on the age and condition of the property.
What is the basis of calculation for residential property?
When calculating house tax for residential properties, several factors are taken into account, including the location of the property, with homes in prime areas or city centres usually charged higher tax.
The age of the property also matters, as newer buildings may have higher tax rates, but can benefit from greater depreciation, which can offset the increase. In addition, the size of the property influences taxes, with larger homes attracting higher taxes.
Meanwhile, occupancy plays a role too, as self-occupied properties may be taxed differently from rented ones. The type of property, such as independent houses versus apartments or condos, can also affect the tax amount.
Penalty for delay in paying property tax
A property owner must pay taxes on time to avoid any penalties or additional charges. Late payment can attract interest charges ranging from 5% to 20%, depending on state or municipality policies, according to a report by Ujjivan Small Finance Bank.
The report also noted that these additional charges are levied on top of the principal amount of the property tax.
In one such instance, last year during April, Bruhat Bengaluru Mahanagara Palike (BBMP) announced that property owners in Bengaluru who failed to pay their property tax dues would face penalties equal to their outstanding amount, along with an interest of up to 15% annually, HT reported.
