How does the new property tax calculation affect your bills? Key aspects of the capital value method of levying tax and some of the specific norms that will be followed

How does the new property tax calculation affect your bills?

Key aspects of the capital value method of levying tax and some of the specific norms that will be followed

The long awaited capital value system for property tax has been now finalised and the software to generate the bills is at final stage. The concept is that citizens will be able to calculate property tax on their own and check if the BMC has sent them the correct bill. The main object of the capital value system is to remove the tax disparity between old and new properties. The highlights of the capital value system are as follows. 1. It will come into force with retrospective effect from April 1, 2010 as per market values of the year 2010 only and the value will not change for the next five years. 2. Capital value will be worked out as per rates given in the stamp duty ready reckoner and market value of properties in mumbai 2010 for all the properties constructed as on 31- 12-2010. Buildings constructed during 2011 and 2012 will be valued as per the ready reckoner of that year. 3. The property tax will be the same whether it is owner occupied or given on leave and license or rent. Presently the rented properties, which attract higher taxes will be re-worked as if it is owner occupied as on 31-03-2010 and will be taxed accordingly. Excess tax charged will be refunded. 4. The property tax will be charged at 0.316% to 2.296% of the capital value depending on its use. Presently the corporation has sent the provisional bills as per rateable value system only. After fixation of capital value and issue of the final bills, if the amount paid is more than the final bill, the same will be refunded with interest at 6.25% per annum. If the amount paid is less than the final bill, the same will be recovered from the taxpayer. There is a proposal to send individual bills to each taxpayer of those societies, which have no arrears of tax dues. 5. Apart from the property tax recovered by the corporation, there are state education cess, employment guarantee cess, repair cess and tax on building having area more than 125 sq metres, which will be charged separately as per rateable value system only. This is because these taxes are not switched over to capital value system by amending relevant acts. 6. Over and above the rates given in the ready reckoner, properties have been assigned factors like age, floor, use and type of building to work out the capital value. Properties have been classified in four groups; open land, residential, shop commercial and industrial. These four groups are further classified in five categories for charging taxes depending on it’s usefulness. Tax will be charged on the built up area of each unit plus common area of the building enjoyed by all the members, on pro rata basis. Actual built up area will be measured on the site. In case of old properties carpet area plus 20% will be accepted as built up area. 7. Once the property tax is fixed, it will not be revised for five years. After five years increase will be restricted to 40% only. 8. Residential units up to 500 sq ft carpet area will pay the same old tax. 9. Residential units more than 500 sq ft carpet area will pay two times of the old tax plus tax on common area on pro rata basis or tax as worked out on capital value system, whichever is less. 10. Non residential units will pay three times of their existing tax plus tax on common area or tax as worked out on capital value system, whichever is less. 11. The market values given in the ready reckoner will hold good for all the properties in Mumbai existing as on 31-12-2010. However old properties will qualify some depreciation. Redeveloped new buildings will be treated as new structure and will be valued accordingly. 12. A flat of 3000 sq ft at Cuffe Parade which is 40 years old paying property tax Rs 750 per month only will now pay Rs. 1500 only, where as a new building next to it will pay property tax more than Rs.30000 per month. There is a big disparity in the present system. 13. Each owner of the unit will receive individual bill, which he will directly pay to the corporation like electric, telephone and gas bills. However this service initially will be available only to those societies which are not in arrears of property tax. 14. The tax bill must be paid on time, failing which it will attract penalty at the rate of 2% per month on the due amount. Kumar and Gupta are authors of the Property Tax Ready Reckoner of Mumbai Municipal Corporation 2010