South Mumbai properties may attract higher taxes

State to move Bill for assessing tax at capital value

In a move that will have a far-reaching impact on property tax structures in Maharahstra, the state cabinet today decided to present a Bill in the forthcoming monsoon session of the assembly that kicks off next week allowing municipal corporations across the state to shift from the present rateable values to capital values for assessing property tax.

"Bill aims at creating parity in the property tax system of municipal corporations, which is currently skewed heavily in favour of old properties," said a senior official of the urban development department.

Under the rateable value system, tax is calculated on the rent a building would have attracted in the year it was constructed. Since rateable value cannot be changed, municipal corporations have resorted to increase in the rate of tax.

In some cases, the taxes are more than 100 per cent of the rateable value. Since this is done across the board "" both on old and new properties "" this system is heavily loaded against the newly constructed buildings.

"This methodology has kept tax rates in south Mumbai and older parts of the city artificially low and increased the tax burden on those living in the suburbs. Under the capital value system, tax is assessed on the basis of current capital value of the property which is subject to revision after every five years," the official pointed out.

"However, the proposed bill will recommend limits on how much tax burden can be increased or decreased on an individual property," the official said.

For example, if one is living in an old chawl in south Mumbai and paying a tax of Rs 150 per annum, then the maximum rise in tax can be Rs 600, even if the capital value of the property is very high and it can attract much higher tax.

The official said the move is likely to attract BPO and IT industries back to the state, as one of the reasons behind these units shifting to Bangalore was higher property tax they were subjected to in Maharashtra, the official claimed.

These units are mostly located in suburbs of Mumbai and Pune where property tax on new properties is relatively high.

"Essentially, tax income from new properties have been subsidising poor tax collection from old properties. Now this anomaly will be rectified to some extent," said a tax consultant.