A Brief Insight into Property Tax Calculation and How it Affects You

Dec 21 2018

Social Media caption – Finding it tough to understand property tax? Here is a quick and easy fact sheet to help you out!

Property tax is a term that often confuses residents due to its complex calculation mechanism and the variable rate of implementation at different locations. In most parts of the world, such a tax is applicable on all occupied properties for residential and commercial purposes. This tax acts as a revenue mechanism for local authorities to function smoothly.

Still finding it hard to deal with it? Worry not! Here is a quick run down of Property tax and how it affects you.

What is Property Tax?

Property Tax is a tax levied on your house, office, workshop, factory or place of accommodation by the local civic authorities to raise revenue for maintenance of public infrastructure and provide general facilities.

Municipality Committee or a similar organisation is usually in-charge of these activities and collects funds from residents. Property tax is subjective of location. A typical city like Delhi can have as much as 8 different zones, for each, the value of property tax is calculated separately.

What factors affect Property Tax?

Factors affecting property tax are directly related to the system of calculation of property tax. There are three types of methods, as mentioned below:

Annual Rental Value – Calculated by the annual rental value approximation of a property and depends upon locality 

Capital Value System – Market value of the property is calculated, upon which some percentage of tax is levied

Unit Area System – Calculated according to the units of area a property occupies

There are several further sub-factors such as plinth area, maintenance and repairs of building, annual rental value etc, that affects the total amount.

How is Property Tax Paid?

Property tax can be paid online at the city’s Municipal Corporation website, for instance, MC website for Mohali (Punjab) is http://mcmohali.org/.

Certain other facilities Mobikwik also allow payments of property tax online. Apart from this, property tax can also be paid at MC office and designated payment institutions.

Property Tax Vs. Property Income Tax

Although they sound very similar, property tax and property income tax are poles apart.

  • Property tax is collected by local authorities for providing local facilities to the residents.
  • Property Income Tax is collected the central government on the basis of the income generated by a property.

Both of the taxes are calculated in different ways and should not be confused by each other. This article particularly focuses on Property Tax.

Rebates on Property Tax

There are several rebates available for taxpayers as issued by the government.

For instance MCD offers a 15 percent rebate if the total annual tax amount is paid in one single go in the first 3 months of the year as a lump sum amount.

Senior Citizens, Women and handicapped are also eligible for a 30 percent rebate on the annual amount of the property tax.

The conditions operating these rebates are determined by local authorities of the state and they can vary from state to state; locality to locality.

Penalties on Late Payment

A penalty of 1-2% per month is implied on the occasion of late payment of tax. On an average this can be an additional cost of 100 to 500 INR which must be avoided by residents.

This was a quick roundup of property tax but if you need more information on it or a personalized advice on property related matters, contact Spacio Realtors today! We are Mumbai’s leading brokerage firm.


What is income property tax law in India

Dec 18 2018

Understanding of Income Tax laws is important in any property transaction. Few terms and provisions which are important to know are:

Capital Asset [Sec 2(14)]

Capital Asset means property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible, but exclude:

  1. Stock in trade held for business
  2. Agricultural land in non-urban area i.e., an area with population less than 10,000.
  3. Items of personal effects, i.e., personal use excluding jewellery, costly stones, silver, gold
  4. Special bearer bonds 1991
  5. Special bearer bonds 1991 5%, 7% Gold bonds & National Defence Bonds 1980.
  6. Gold Deposit Bonds 1999.

Real estate is a Capital Asset. Even Letter of Allotment if containing legal bindings is considered as Capital Asset.

An asset which is held by an assessee for less than 24 months is called as Short Term Capital Assets whereas an asset which held for more than 24 months, is called as Long term Capital Asset. In case of share and securities, this period is reduced to 12 months.

Transfer [Sec 2(47)]:

Transfer includes;

  1. Sale, exchange or relinquishment of a capital asset
  2. Extinguishment of any rights in a capital asset
  3. Compulsory acquisition of a capital asset under any law
  4. Conversion of a capital asset into stock-in-trade
  5. Transfer of rights in immovable properties through the medium of co-operative societies, companies etc.
  6. Transfer by a person to a firm or other Association of Persons [AOP] or Body of Individuals [BOI]
  7. Distribution of money or other assets by the Company on liquidation
  8. Distribution of capital asset on dissolution.

Capital Gains:

If the Property is held for less than 2 years from the date of purchase, the same is termed as ‘short term capital asset’ and the gain on sale of such property is taxed at applicable normal rate of tax.

However, if the asset is held for more than 2 years from the date of purchase, the same is treated as ‘long term capital asset’ and becomes entitled to host of tax benefits like:

  • Cost adjustment for inflation
  • Reinvestment benefit
  • Concessional rate of tax at 20%
  • Cost adjustment for Inflation:

Section 48 of Income Tax Act provides that the cost of acquisition and improvement thereon shall be adjusted upwardly for inflation referred as cost inflation indexation. The Act has provided 1-4-2001 as the base year and notifies indexation factor every financial year.

  • Reinvestment Benefit:

Sections 54, 54EC and 54F provides various kinds of tax reliefs if the capital gain or sale consideration is reinvested in purchase of another residential house or invested in specified bonds. The maximum limit of investment in specified bonds is Rs.50 lakhs. The benefits under these sections are mutually exclusive and can be taken together. However, the tax benefit varies depending upon whether the sold property is residential or commercial.

  • Concessional rate of tax at 20%:

The Act provides that capital gain on sale of immovable properties as finally computed after taking benefit available under various sections, shall be taxed @ 20%.

The above benefits of long term capital gain are available only for personal assets and not for assets held as business asset.

Tax Deducted at Source (TDS):

Tax Deducted at Source or TDS as its commonly known refers to collecting income tax from the payment source. Under the scheme of TDS, Deductor who is a person/company is liable to deduct the Tax at source from the payment being made to the other party. Deductee is the person, from whom the tax is being deducted or accrued for deduction.

In India, w.e.f. 1-6-2013 the Buyer is required to deduct tax @ 1% from the payment made to Seller/Developer and deposit the same with the Government authorities.

The cut-off value for such a transfer of property is above Rs.50 lakh. So if you have a house or a plot of land, which is valued above Rs.50 lakh at the time of sale, then you will have to pay a TDS of 1% while selling it which will be deducted by Buyer and deposit with Government on Seller’s behalf. Agricultural land is exempt from this. TDS @ 20% is applicable for NRI, at the time of sale or transfer of property. However, such NRI seller or the Buyer may apply to Income Tax authorities for lower rate of tax deduction.


Tax Exemption of Gain on Property Sale – Mumbai High Court clarifies the law

Dec 18 2018

Section 54/54F, of the Income Tax lay down rules of exemption of Long Term Capital Gain where the sale proceeds of the assets are invested into the new residential property. As per the law, exemption from long term capital gain is available if invested in a new residential property within one year before or two years after the sale of an asset. The period is extended upto three years if the proceeds are utilized for construction of new property. The tax payer is required to utilize the capital gain towards purchase of new asset before the filing of Income Tax return. However, if the tax payer does not utilize the full gain before the filing of return, then he is required to deposit the unutilized money in a specified bank account before the due date of filing of return. If the entire amount of LTCG is not invested or deposited, the unutilized portion of the gain shall be subject to tax.

There has been instances where the tax payer has taken a plea, that if the value of new residential house purchase is equivalent to or more than the gain and the same has been utilized within the specified period of 2/3 years (as the case may be) then the full gain should be given exemption even if the unutilized portion is not deposited into the specified bank account before the due date of filing of return.

The Mumbai High Court in a recent judgement in the case of “Humayum Suleman Merchant vs The Chief Commissioner of Income Tax, Mumbai” provided clarification and interpretation of law holding that, “The amount which has not been utilized in construction or purchase of property before the filing of return of income must be necessarily deposited in the specified bank account”.


Tax Treatment of Compensation Received by the Flat Owner from Re-developer of the Co-op. Housing Society

Dec 17 2018

In Mumbai suburbs, re-development of existing old buildings have become a big real estate activity as the Government permits additional floor area to be constructed which ranges from 2 times to 2.7 times of the plot area. To make the proposal lucrative, the developer offers existing member some additional area in the re-constructed area alongwith lump-sum money termed as corpus or compensation and also rent for a specific construction period.


Is this compensation/ rent taxable?


It has been a raising issue whether such compensation and rent received by a member of society is taxable or not under the Tax Act. The tax authorities have been taxing such receipts considering the same as taxable capital receipts, while the members’ contention has been that this compensation is towards hardships which the flat owner faces owing to the re-development activity. Thus, such compensation is in the nature of capital receipts which is not taxable.

In the recent judgement, the Mumbai Income Tax Appellate Tribunal in the case of Jitendra Kumar Soneja v/s. ITO held following the earlier judgment of Tribunal in the case of Kushal K. Bangya v/s. ITO that the compensation received by the owner of the resident flat in the society building is not taxable as the same is related to the Capital Asset and accordingly the same is outside the ambit of income u/s.2(24) of the Income Tax Act. It further held that, though the Capital receipt is not taxable as income, it shall end up reducing the cost of acquisition of flat and the same will be taken into account as and when the property is sold or transferred. Further, the Tribunal also held that any amount paid by the Developer towards rent shall be exempted only to the extent the same is spent towards paying rent till the owner has moved back to his original house. Any excess of receipt over the rent expense shall be taxable as income from other sources.

The judgment given by the Honorable Tribunal has tried to settle a controversial issue of taxation of compensation, but it is not going to be very easy as tax authorities will definitely challenge such decision in the Higher Courts. So, one wish the issue is somehow decided by the Higher Courts so as to give absolute clear map for taxation of such compensation received by the Flat owner.


Property Tax Laws in India

Dec 17 2018

About various property tax laws in India including:

I. Income Tax
II. Wealth Tax
III. Service Tax
IV. VAT


I. Income Tax:


Understanding of Income Tax laws is important in any property transaction. Few terms and provisions which are important to know are:

Capital Asset [Sec 2(14)]

Capital Asset means property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible, but exclude:

  1. Stock in trade held for business
  2. Agricultural land in non-urban area i.e., an area with population less than 10,000.
  3. Items of personal effects, i.e., personal use excluding jewellery, costly stones, silver, gold
  4. Special bearer bonds 1991
  5. Special bearer bonds 1991 5%, 7% Gold bonds & National Defence Bonds 1980.
  6. Gold Deposit Bonds 1999.

Real estate is a Capital Asset. Even Letter of Allotment if containing legal bindings is considered as Capital Asset.

An asset which is held by an assessee for less than 36 months is called as Short Term Capital Assets whereas an asset which held for more than 36 months, is called as Long term Capital Asset. In case of share and securities, this period is reduced to 12 months.

Transfer [Sec 2(47)]:

Transfer includes;

  1. Sale, exchange or relinquishment of a capital asset
  2. Extinguishment of any rights in a capital asset
  3. Compulsory acquisition of a capital asset under any law
  4. Conversion of a capital asset into stock-in-trade
  5. Transfer of rights in immovable properties through the medium of co-operative societies, companies etc.
  6. Transfer by a person to a firm or other Association of Persons [AOP] or Body of Individuals [BOI]
  7. Distribution of money or other assets by the Company on liquidation
  8. Distribution of capital asset on dissolution.

Capital Gains:

If the Property is held for less than 3 years from the date of purchase, the same is termed as ‘short term capital asset’ and the gain on sale of such property is taxed at applicable normal rate of tax.

However, if the asset is held for more than 3 years from the date of purchase, the same is treated as ‘long term capital asset’ and becomes entitled to host of tax benefits like:

  • Cost adjustment for inflation
  • Reinvestment benefit
  • Concessional rate of tax at 20%

Cost adjustment for Inflation:

Section 48 of Income Tax Act provides that the cost of acquisition and improvement thereon shall be adjusted upwardly for inflation referred as cost inflation indexation. The Act has provided 1-4-1981 as the base year and notifies indexation factor every financial year. The cost inflation index stands at 1125 for F.Y. 2016-17. This means that if one has purchased a property in the year 1981-82 for Rs.1 lakh, the cost of the same, if sold in the year 2016-17, shall be taken as Rs.11.25 lakh, giving a substantial relief in quantum of capital gain.

Reinvestment Benefit:

Sections 54, 54EC and 54F provides various kinds of tax reliefs if the capital gain or sale consideration is reinvested in purchase of another residential house or invested in specified bonds. The maximum limit of investment in specified bonds is Rs.50 lakhs. The benefits under these sections are mutually exclusive and can be taken together. However, the tax benefit varies depending upon whether the sold property is residential or commercial.

Concessional rate of tax at 20%:

The Act provides that capital gain on sale of immovable properties as finally computed after taking benefit available under various sections, shall be taxed @ 20%.

The above benefits of long term capital gain are available only for personal assets and not for assets held as business asset.

Tax Deducted at Source (TDS):

Tax Deducted at Source or TDS as its commonly known refers to collecting income tax from the payment source. Under the scheme of TDS, Deductor who is a person/company is liable to deduct the Tax at source from the payment being made to the other party. Deductee is the person, from whom the tax is being deducted or accrued for deduction.

In India, w.e.f. 1-6-2013 the Buyer is required to deduct tax @ 1% from the payment made to Seller/Developer and deposit the same with the Government authorities.

The cut-off value for such a transfer of property is above Rs.50 lakh. So if you have a house or a plot of land, which is valued above Rs.50 lakh at the time of sale, then you will have to pay a TDS of 1% while selling it which will be deducted by Buyer and deposit with Government on Seller’s behalf. Agricultural land is exempt from this. TDS @ 20% is applicable for NRI, at the time of sale or transfer of property. However, such NRI seller or the Buyer may apply to Income Tax authorities for lower rate of tax deduction.

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II. Wealth Tax:

[Abolished w.e.f. 01-4-2015 (A.Y. 2016-17)]


Wealth tax is a direct tax, which is charged on the net wealth of the person. It is a tax on the benefits derived from ownership of property. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income.

Wealth tax, in India, has been abolished w.e.f. 1-4-2015

Prior to abolition, wealth tax was charged @ 1% of the amount by which the net wealth exceeds Rs.15 Lakhs.

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III. Service Tax:


 Service Tax on Under Construction Property:

Service Tax is levied only on Under Construction Property. Service Tax on Under Construction Property is levied by the Builders or Real Estate Developers on the sale price of the under-construction property.

At the time of sale of property, the amount paid by the purchaser to the Builder is for :-

  1. Value of Land
  2. Construction cost

Service Tax won’t be levied on the Value of Land and would only be levied on the Construction cost provided by the Builder/Developer as per the rates in force which currently is 15% (incl. of Education Cess, SHEC and Swachh Bharat Cess)

Considering that the total consideration charged has two components namely land and construction value, of which land is significant part which is not chargeable to Service Tax; abatement of 70% in the Service Tax is provided. At present, Service Tax @ 15% on 30% (70% Abatement) of the total purchase price is levied on “under construction property”.

No Service Tax is chargeable after the property is completed and Completion/Occupation Certificate is received.

Service Tax on Rentals:

Renting of commercial property is considered as Service. Thus, Service Tax is applicable on rental income from commercial property. Renting of residential property is exempt from Service Tax. At present, Service Tax rate is 15%.

The procedure for registration for Service Tax:

–     The assessee shall make an application in Form ST 1 to the Superintendent of Central Excise in duplicate.

–     The application shall be filed within 30 days from the date of providing taxable service and shall bear the address sought to be registered.

–     The application should be filled up carefully without errors and columns and boxes which are not applicable may contain “NA” stated across them. All the taxable services provided should be mentioned on the application and there would not be separate applications for each of such taxable services.

–     The Form should be signed by the director/partner/sole proprietor as the case may be or the authorized signatory.

The application shall be filed along with the following documents –

  • Self certified copy of PAN (where allotment is pending, copy of the application for PAN may be given).
  • Copy of MOA/ AOA in case of Companies
  • Copy of board resolution in case of Companies
  • Copy of Lease deed/Rental agreement of the premises
  • A brief technical write up on the services provided
  • Registration certificate of Partnership firm
  • Copy of a valid Power of Attorney where the owner/MD/Managing Partner does not file the application.
  • Once filed, the acknowledgement for having filed the application is to be obtained on the duplicate copy for one’s own reference.

If the Particulars stated in the Form are correct, then the Registration Certificate would be provided within a period of 7 days. Where not so provided, the registration is deemed to have been granted.

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IV. Value Added Tax (VAT):


A Value Added Tax (VAT) is a modern and progressive form of sales tax. It is charged and collected by dealers on the price paid by the customer. VAT paid by dealers on their purchases is usually available for set-off against the VAT collected on sales.

VAT on Sale of Property:

Before 2006, no VAT was levied on property sale. The state introduced it in 2006 after the Supreme Court passed an order in 2005, putting Builders and Contractors in the same bracket.

W.e.f. 01-4-2010, the applicable tax rate is fixed @1% of the agreement value.


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