When you buy a piece of property, you are often required to pay a number of taxes over and above the cost of the property when you make the purchase. Of these, Property tax or House tax is a tax levied on a property and is a percentage of the value of the property.
Generally, there are three main types of methods that are employed to calculate property tax. The Rateable Value System (RVS), the Unit Area Value System (UAS) and the Capital Value System(CVS). Property tax rates are usually decided on a city-wide basis by the local municipal authority. In Mumbai for instance, the MCGM is responsible for setting property tax rates.
In this article, let’s take a look at the various methods which are employed to calculate property tax rates. With this, you can look up the method employed in your city and carry out the calculation yourself so that you are sure of the exact amount you owe.
Annual Rental Value System/Rateable Value System(RVS) :
Under the Annual Rental Value System, the home loan tax calculator you would employ would first account for the gross annual rent of the property which is decided by the municipal body of that city. Various factors such as the condition of the property, amenities provided and distance to key landmarks can factor into this price estimate. Here is how the calculation would be calculated for property in Chennai.
Rental Value of the property (Monthly) = Basic Rate/sq feet * Plinth Area
Annual Rental Value = (Monthly Rental Value *12) - 10%.
Based on this rental value the property tax will then be applied under the Annual Rental Value System.
Unit Area Value System (UAS)
Under the Unit Area Value System or UAS, property tax accounting for stamp duty is calculated based on the per square foot price of the built-up area of the property. This square foot per month value is decided by the local authorities after factors such as expected returns, location, price of the land, occupation of the property.
The following formula (or variations of it ) are likely to be applied in cities like Bangalore, Hyderabad, Kolkata and New Delhi.
Annual Value = Unit Area Value * Covered Area * Use Value* Age Value* Structure Value* Occupancy Value
Capital Value System (CVS)
In order to calculate property tax based on the Capital Value System or CVS, the stamp duty of the property has to be accounted for. In this system, once the stamp duty of the property has been set, which is usually carried out by the local authorities, the property tax for a loan against property, for instance, is calculated based on this value.
Mumbai follows the CVS System, and the property tax based on the stamp duty is decided by the MCGM, the local municipal corporation. The calculation is carried out in the following manner. There are a number of variables that factor into the stamp duty and subsequent tax rate of the property such as the type of the property, what amenities are provided, the age of the property and the location, among others.
The tax is then calculated based on the following formula :
Property Tax = Tax Rate * Capital value.
The rate, issued by the government based on the value of the stamp duty is revised on an annual basis.
Buying your first home, making your first property investment or even taking a loan against your property can be an exciting prospect, though you should ensure you account for the property tax in order to avoid rude surprises later on. If you are looking for a home loan, a number of options are available on the Piramal Finance website. If you wish to apply for a home loan or take a loan against property you own on the Piramal Finance Website, you can follow these steps.
[Also Read: Tips and Advice for Loan Against Property ]