Report accurate land or building area to avoid assessment disputes

Preserve ownership and renovation documents to bolster case regarding property value

Bengaluru is poised for a significant increase in property tax following the Bruhat Bengaluru Mahanagara Palike’s (BBMP) proposal to levy property tax based on the value-based method of assessment.

Experts suggest this could send the already high apartment rentals spiralling even higher as landowners pass on the burden to tenants.

“The proposal suggests getting rid of the old zonal method. The new method will base tax on the guidance value of properties,” says Nihal Bhardwaj, associate, SKV Law Offices. 

Guidance value is a property’s minimum price, as determined by the government.

Homeowners need to understand the nitty-gritty of property tax.

“Property tax is essentially a user fee for the various services provided by the local government, including infrastructure maintenance, sanitation, public safety, and other community services,” says Sandeep Bajaj, advocate, of the Supreme Court of India.

Three methods of calculation

Property tax based on the capital value method depends on the property’s market value. It’s followed in Mumbai.

Next is the unit area value method. “It’s calculated on per square foot basis. The per square foot rate varies from one location to another,” says Alay Razvi, partner, Accord Juris LLP. Delhi, Kolkata, Hyderabad, and Pune follow this approach.

The rentable value method considers the potential rent from the property.

“The municipal authorities estimate the rental value of the property. The property tax is then calculated as a percentage of the rental value. This method is more commonly used for commercial properties,” says Ritika Nayyar, partner, Singhania & Co. Chennai and some parts of Hyderabad follow it.

Exemptions and rebates

Property tax exemptions are granted to specific categories of properties or owners.

“Exemptions are typically offered to senior citizens, persons with disabilities, and agricultural properties,” says Suresh Surana, founder of RSM India.

The exemption for senior citizens is designed to reduce their financial burden. Bhardwaj notes that the age eligibility might differ slightly based on local government rules.

Other categories of individuals who may qualify for property tax exemption are people with mental or physical disabilities; families of martyrs from the Indian Army, BSF, police service, CRPF, or fire brigade; and educational institutions.

Rebate structures vary by state.

“The Municipal Corporation of Greater Mumbai (MCGM) has completely waived the property tax for properties up to 500 sq. ft. Units between 501 sq. ft. and 700 sq. ft. receive a 60 per cent discount on the BMC property tax rate,” says Bhardwaj.

Anand Moorthy, co-founder and chief business officer (CBO), asset management services and data intelligence, Square Yards, informs that Delhi offers rebates of up to 30 per cent to senior citizens, physically challenged, women, ex-servicemen, group housing flat owners, and Central Government Health Scheme flat owners.

In Bengaluru, if a person pays tax within one month of the start of the year, they get a rebate of 5 per cent.

“BBMP can grant a concession of up to 50 per cent on property tax for buildings or vacant land on which a socially or ecologically beneficial scheme has been implemented,” says Abhilash Pillai, Partner, Cyril Amarchand Mangaldas

Varied penalty rates

Municipal corporations penalise late property tax payments. BBMP, for instance, charges a penalty of 24 per cent interest per annum on the outstanding amount.

“Penalties can include attachment of properties, bank accounts, rent, and other movable assets,” says Moorthy. 

He adds that failure to settle property tax dues promptly complicates sales, as prospective buyers usually demand full settlement of all past dues before finalising a deal.

Report accurately

Provide the precise area of the land or building on the prescribed forms. “This will ensure accurate tax assessment and prevent disputes in the future,” says Pillai.

Maintain accurate records of ownership documents, purchase agreements, and renovation receipts. 

“They might help justify the property’s market value while contesting an assessment,” adds Bajaj.