The income tax laws in India entitle all asset holders to share a part of their revenue with the administering government. If you happen to be enjoying residential accommodation, you cannot do away with income tax on house property. In this regard, some commonly related concepts are building tax, land tax, property tax, etc. Though the concepts are closely related to one another, they are not the same.
We will be highlighting some facts that property holders need a close insight into. We will emphasize on topics such as property tax base in India, property tax rebate in India, and many more. As a taxpayer, you ought to be aware of your rights and liabilities. That is all we aim to fulfill by the end of this blog post.
Building tax differentiated from other similar concepts
Terms such as building tax, property tax, the land tax might appear similar to you, but is it so? The context in which such terminologies are used in India makes them different from one another. Property tax is a simpler concept, and it resembles the annual tax paid to the local authority within whose jurisdiction your property lies. On the other hand, land tax is the tax paid owing to ownership of bare real estate property. However, the implication and context of building tax are completely separated from the others.
Building tax is calculated on your annual income, from which the tax gets deducted depending on the category of income your earnings fall under. As an owner of a property, if or not you are entitled to any profits out of it, you need to part with the government as its revenue. That is exactly what is termed as income tax on house property. The mere existence of ownership of a property and its benefits entitles you to pay taxes as responsible citizens.
What are the different categories of buildings for which tax can be charged?
There are primarily three types of usages of a building. It can either be a residential building, a commercial building, or a building used for institutional purposes. Each category has a different capability to generate revenue which further interferes with the amount of tax you need to pay. Besides, there lies about other multiple subheads under which category a particular building might fall. Depending on these factors, building tax is often accounted for. It is mostly the residential building paying the least taxes and the commercial buildings paying the most taxes.
Modes of calculating building tax
The civic bodies scattered in different parts of India usually opt for three typical modes of calculating taxes. Let’s take a look at how the procedure is conducted:
- Capital value system (CVS): It is perhaps the simplest mode of calculations fixed by the government itself. Under this system, the market value of the property is the key consideration. Such market value differs as you move from one location to the other. Based on the locality, such value is determined by the government. Mumbai is one such city that has adopted such a valuation method.
- Unit area value system (UAVS): The name in itself suggests a rough picture for the audience. Under the UAV system, the carpet area of the land is a considerable factor. The value per Sq. Ft area is multiplied by the total area of the land that the building is constructed on. States such as Ahmedabad, Kolkata, Hyderabad, Delhi, Bengaluru, Patna follow this method of valuation. The unit per area system takes into consideration the position, construction type, and the type of building. These categories play an influential role in determining the per Sq. Ft value of the land in consideration.
- Annual rental value system (ARVS): Under this system of valuation, it is the presumptive rental capabilities of a property in a year, taking into consideration. The municipal corporation of the jurisdiction determines such a rate based on certain factors that contribute to the rent generating capabilities of the property.
These are the various methods that help the civic bodies adjudge taxes for each building. However, there are other equally important factors to be taken into consideration. Some of those factors include locality, market value, proximity to important destinations, etc. All such factors make up for the tax amount you are obligated to pay.
Conditions that exempt tax pay on buildings
In India, the provisions for exemption of tax are enjoyed by several categories of buildings that serve the welfare of the country. In a country where the public good is of utmost consideration, such features are often noted. Therefore, here are some examples of the building that enjoy tax exemption: spaces meant for religious purposes, educational establishments, charitable institutions, ancient/historical monuments, burial/cremation grounds, government land/buildings set out for recreational purposes, trade union association offices, buildings/ lands of urban development authorities established in each state and their acts, establishments providing free medical aid/education and certain specific vacant land/ buildings, belongings of war widows and high-importance award winners, properties of foreign embassies and central government, including the residences of significant bureaucrats and politicians.
Penalty/consequence for non-payment
Different cities or municipalities have diverse methods of building tax collection. However, with the ever-growing issues of illegal constructions, there is a lack of revenue that reaches the government. India has a vast lower income group population, and that perhaps is the reason behind such illegal construction, thus leading to a scarcity of funds for the government. Nevertheless, gone are the days when strict actions and penalties were not charged on people willing to avoid legit tax pay.
Lately, the authorities in different states have enacted different methods to deal with repeated offenders. In the initial stage of non-payment, the authorities order cuts on essential connections such as electricity, water, broadband, etc. Depending on the intensity of the case, some might even be entitled to legal constraints for nonpayment. Cities such as Noida and Gurgaon are perfect examples to support such penalty claims. In these cities, properties of long-term defaulters are confiscated as a consequence.
Property law base in India: Its status
In India, property tax lies in several folds of categories. The word property has its classifications. It is not just land considered to be property; any improvements made to a particular piece of land falls under the category of a property. Likewise, the government mandates the payment of such a category of taxes. The valuation of such property is bestowed on the local civic body under the jurisdiction of the region. It is primarily the municipal corporations.
The payment of such taxes is carried out either annually or semi-annually, depending on each region. It is an excellent source of revenue for the government to build up the local amenities for the public good. From expenses on road repairs to maintenance of public places like parks, hospitals, etc., are undertaken by the government based on these taxes. The tax payable is differently applied in different places, and it all depends on the location, connection with amenities, etc.
Can tax be charged on vacant spaces?
In India, there are no particular norms to entitle a house owner to pay vacant building tax. However, when it comes down to property tax, there is no consideration of whether you have a construction or not. Every landowner is annually entitled to pay such property tax. But, over the past few decades, there has been a change in perceiving the high-value resources. Several states have adopted the system of charging vacant land tax.
States such as Punjab, Andhra Pradesh, Tamil Nadu, and even the Union Territory of Delhi fall under the purview of such a newly implemented scheme. The principle behind such implementation is to preserve wasting resources that are of high value to the nation. In the state of Tamil Nadu, the valuation of vacant land tax is calculated on the basis of per Sq. Ft area and its proximity to important areas. Likewise, different implementing states have their recourse in calculating the tax valuation of a vacant property.
Likewise, in Hyderabad, the state legislature is such that any vacant land which is not used for agricultural, or occupation purposes will have to pay a tax. The amount of tax payable is about 0.05% of the total valuation of the plot. There is variation when we move to Punjab. In Punjab, too, the state legislations were amended, and taxes were levied on unproductive spaces. It is chargeable at 0.2% of the yearly valuation of the property.
Online payment basics of building tax
The 21st century calls for easy access to the internet. Similarly, today, one can choose to opt for online payment of taxes. Municipal corporations enable property taxpayers to avail themselves of the online mode of payment. Almost all megacities, along with certain comparatively smaller cities, have opted for online mode of payment through debit/credit card or even net banking. Once you enroll yourself with the official portal, you are all good to go. However, for the registration procedure, one needs to put in both personal and property details.
Post-registration, all you need to do is provide some identification details and relevant documents to initiate the payment. One can make payment via the prescribed modes and acquire a challan printout for future reference.
Conclusion
Owning a property ensures payment of taxes as per the prescription of the legislation. However, a property tax rebate in India can be allowed when the intention behind acquiring the property is public good and welfare. Non-payment, too, can lead to a situation that is not likely suited for most. Hence, as responsible citizens, it is part of our responsibility to fulfill the mandated legal norms.
Moreover, the government’s expenses are run from the payment made by taxpayers, and a compromise on that would lead to malfunction. Thus, ensuring the complete safety of your land and property in the public records is a must. And paying building tax gives you the liberty to enjoy your property holding at its best forms.
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Does the central government decide the amount of tax levied?
No, the central government has no role to play in this regard. Payment of building, property taxes and similar other taxes are under the purview of local civic bodies such as municipal corporations, panchayats, etc. Therefore, the central government does not interfere with the regime of the local authorities.
In the case of tenancy, which is required to pay building tax?
In the case of tenancy agreements, it is the sole responsibility of the owner/landlord to pay the building tax. The tenant is in the mere possession of the space, and he is not the owner of such property. If the landlord asks the tenant to pay such expenses, the tenant can move to court and sue such a landlord.
From which date should the building tax be calculated?
The owner is simply liable to pay the enumerated building tax from either the date of occupation or completion of the building. In states where vacant land is liable for tax payment, they might have different provisions in this regard.
How should I apply for a building tax exemption?
The application for building tax exemption is made to the commissioner. The application must accompany the necessary documents. It is only when such an application is approved, you are exempted; otherwise, normal rules of payment of building tax will be applicable for you.
Are building taxes the same for all buildings?
No, building tax differs from one building to the other. Buildings are primarily used for three purposes, residence, commercial or institutional. All three different purposes have the potentiality to generate different levels of income. Thus, taxes differ depending on the revenue you generate annually out of the building in context.
