A property tax (or millage tax) is a levy on property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located.
In other words, Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on owners. It resembles the US-type wealth tax and differs from the excise-type UK rate.
What properties come under property tax?
- Residential house (self-occupied or let out)
- Office Building
- Factory Building
- Godowns
- Flats
- Shops
- Any land attached to the building (e.g. Compound, garage, garden, car parking space, playground, gymkhana, etc.).
With whom lies the authority?
The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures.
How is it calculated?
The tax base is the annual rental value (ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent.
Vacant land is generally exempt. Central government properties are exempt. Instead a 'service charge' is permissible under executive order.
The tax is usually accompanied by a number of service taxes, e.g., water tax, drainage tax, conservancy (sanitation) tax, lighting tax, all using the same tax base. The rate structure is flat on rural (panchayat) properties, but in the urban (municipal) areas it is mildly progressive with about 80% of assessments falling in the first two slabs
Under a property tax system, the government requires and/or performs an appraisal of the monetary value of each property, and tax is assessed in proportion to that value.
How to pay?
You can pay online. Also you can go to the e- counters or the zonal office.
Which Banks allow to pay property tax over-the-counter?
Canara Bank, Corporation Bank, HDFC Bank, IDBI Bank, Induslnd Bank, Indian Overseas Bank, Kotak Mahindra Bank, ING Vysya Bank and Yes Bank.
Tax Planning for Income from House property
You can minimize your tax out go in the following cases:-
(1) Owing more than one property – If you own more than one property, then only one house of your choice will be considered as self-occupied and others will be considered as let out or Deemed to be let out (if not let out). Therefore, you should carefully evaluate and choose a property with less tax liability.
Illustration:
If Shiva has two houses than he can choose one which will minimize his tax liability.
Particulars (If Deemed Let out)
|
House 1
|
House 2
|
Annual Value
|
3,60,000
|
7,00,000
|
Less: (Municipal Taxes)
|
(40,000)
|
(54,000)
|
Net Annual Value (NAV)
|
3,20,000
|
6,46,000
|
Deductions u/s 24
| ||
(a)30% of NAV
|
(96,000)
|
(1,93,800)
|
(b)Interest on borrowed capital
|
(1,75,000)
|
(2,50,000)
|
Income from House Property
|
49000
|
2,02,200
|
If Shiva considers House 1 as Self-occupied and House 2 as deemed to be let-out then his income from house property will be Rs. 52,200 and it will be negative Rs. (1,01,00) vice-versa. Therefore, he should consider House 1 as deemed let out and House 2 as self –occupied.
(2) Joint Home Loan – If you are a Joint owner and also apply for a joint home loan then both the co-borrowers can take a maximum deduction of Rs.1,50,000 each. In case you have a working son or daughter and the bank is willing to split the loan three ways, all three can avail deduction up to Rs 1,50,000 each.
(3) First house is in a single name and planning a second home – If your first home is in single name then you can buy a second home in your spouse’s name to help you avoid tax on ‘deemed to be let-out’ property.
(4) Joint Ownership – Income from house property can be divided between both the co-owners which can reduce overall tax liability.
Your home and a meticulous planning can lighten up your tax burden to a great extent.
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