Guide To Property Taxes In India: What Homeowners Need To Know

How are property taxes determined?

 

Two factors that determine the calculation of property taxes are: the assessed value of the home and the applicable tax rate. Assessors evaluate the property's worth by considering factors like location, condition etc. . The tax rate, set by local governing bodies, is generally a percentage of the property's valuation.

 

For example, if a home is valued at ₹80 lakh, and the tax rate is 1%, the homeowner would owe ₹80,000 in annual property taxes. Again, since tax rates and property values differ as per location, the amount due can vary widely. Municipal corporations set their own tax rates. Hence, the amount differs across cities and states. Urban areas may usually have higher tax rates as compared to rural ones.

 

Key things every homeowner should know about property taxes

 

Property tax is a recurring tax levied by municipal authorities on real estate (including residential and commercial properties). These taxes play an important role in supporting community services. They help finance police, schools, road maintenance, fire departments, local administrative functions, and public parks etc. Without property taxes, municipalities would struggle to maintain essential services and infrastructure.

 

Here are a few things you must know:

 

1. Ongoing expense

   
   

   Property taxes are a recurring cost. They may rise as real estate values increase. Planning for these changes can help homeowners avoid the financial strain.

   
   
   

2. Direct tax payment:

   
   

   If there is no active mortgage, the homeowner is responsible for making property tax payments directly to the local tax office.1 For example, if you have a house in Agra, then as a city property/ house owner you will have to pay the tax to the local government organisation in Agra called Agra Nagar Nigam.

   
   
   

3. Mortgage and tax payments:

   
   

   Those with a mortgage may have their property taxes included in monthly loan payments. Lenders often set aside this a portion to cover property tax on time.

   
   
   

4. Payment deadlines:

   
   

   This is super important. You are usually required to finish up with your property tax payments, typically semi-annually or on annual basis. These dates can vary from year to year and state to state. Make sure you check in with the local government schedules to ensure timely payments.

   
   
   

5. Challenging the assessment:

   
   

   In case a property is overvalued, homeowners can file an appeal to request a reassessment. A clear, transparent, and successful appeal can help you with lower tax liabilities.

   
   
   

6. Payment (when and how):

   
   

   As stated earlier, most municipal corporations allow property tax payments annually or semiannually. 1 Additionally, there are two payment methods: online and offline. Most municipal websites have now made it easy to process digital payments. All you need is a stable internet connection and all related documents. In the case of an offline method, you can pay at designated municipal offices.

   
   
   

7. Consequences of not paying timely:

   
   

   Ignoring property tax payments can lead to serious consequences like heavy fines, penalties and/ or legal action. Late fines will come with penalties. Make sure you follow up with the deadlines. It will help you avoid financial and legal trouble.

   
   
   

Exemptions on property taxes in India

 

Some property owners are eligible for partial or full tax exemptions. Some of the common deductions include:

 

1. Tax Deduction on Home Loan Interest:

   
   

   Section 24 allows a tax benefit of up to ₹2 lakh per year on interest paid for a self-occupied home loan. The entire home loan interest can be taken as a deduction for rented properties.

   
   
   

2. Tax Deduction on Principal Repayment:

   
   

   Section 80C allows a tax benefit of up to ₹1.5 lakh on principal repayment. However, it only applies if the property is held for at least 5 years and is not sold within that period. Take a look at the conditions that apply:

   
   
   
   • The home loan should be taken specifically for purchasing or constructing a new residential property
     
   • You will be able to get the tax benefit if you hold the property for at least five years after taking possession. If you sell before this period, it will result in the deduction being reversed and added to your taxable income in the year of sale.
     
   • Expenses such as stamp duty, registration charges, and other transfer-related costs can be claimed as deductions under Section 80C, with a cap of ₹1.5 lakh, for the specified financial year.
     

3. Tax Deduction for First-Time Homeowners:

   
   

   First-time homeowners can claim additional tax benefits under Section 80ee and 80EEA. Section 80EE allows a deduction of a maximum of ₹50,000 every year on home loan interest for home owners with only one house for the loan period of April 1, 2016 to March 31, 2017 offered by any financial institution or any housing finance limited. However, the loan amount cannot be above ₹35 lakh and the property's value should be within ₹50 lakh and this should be only house in the claimant’s name.

   
   Section 80EEA was introduced for affordable housing. It offers an extra ₹1.5 lakh deduction beyond Section 24(b) subject to the stamp duty value not exceeding beyond 45 Lakhs. Section 80 EEA deduction is available only to individual taxpayers who are not eligible to claim deductions under Section 80EE. In short, these benefits help first-time buyers with reduced financial burden and also promote affordable housing.

    

   
   
   

Wrap up

 

Summing up, property taxes are an undeniable part of homeownership. Hence, knowing the ins and outs of this concept can help you manage costs better and even save money. Furthermore, understanding how these taxes work, how they impact personal finances, and the available tax relief options can help you manage your obligations efficiently. Make sure you stay updated with property tax rules, check for exemptions you might qualify for, and always pay your taxes on time.

 

FAQs

 

1. What if I don't pay property tax?

   
   

   Failing to pay property taxes can lead to a penalty and other legal consequences also. It is recommended that you pay your property tax on time.

   
   
   

2. What is property tax?

   
   

   Property tax is a yearly fee that landowners must pay to their local government or municipal corporation. It is calculated on the basis of the property's assessed value and applies to all types of real estate.