Property Taxes Simplified

Whether you are a first time property buyer or a real estate guru, property tax is an inevitable part of your expenses. As much expertise as you may have in availing tax benefits, it is not easy to comprehend property taxes in the real estate business. As a matter of fact, most of those who invest in property in India are not very familiar with the working of the property tax mechanism.

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So here we are, with some facts to guide you with the basics of property taxes in India:

What is property tax?
Well, simply put, it is a duty that is levied on owners of property in India by a municipality, Nagar Palika or a similar governing body. It essentially is a type of income tax charged by the government on the profit that a property owner makes on selling, leasing or retaining the value of the concerned property. It is important to note here that property taxes in India are not uniform across the nation. In fact, the rate varies from state to state and area wise as well. In the National Capital Region itself, the tax rate varies from 6% to 10%.

Why is Property tax charged?

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Property taxes are imposed by local governing bodies in order to sustain the civic amenities in that particular area or city. Promoting infrastructural development is the primary idea behind levying taxes on property. However, the fundamentals of property taxes remain governed by Income Tax.

What types of properties qualify for property tax?
As per the tax authorities' guidelines on tax being levied on property in India , the following qualify as taxable properties:

• Profit earned on the sale of property (maximum tax is levied if it is sold during the first three year of ownership)
• Any property which is not fully occupied by the owner throughout the year
• Any property which is let out, or is generating income for the owner (in which case the income will be taxable)
• Any property which is vacant but expected to be let out qualifies for being levied with tax on the basis of Annual Worth and prevailing rent rates in the neighborhood. The municipal taxes, if already paid on owned properties, can be deducted from the Annual Value of such properties.

What types of properties do not qualify for property tax?

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Certain types of properties are exempted from property taxes. These include:

• One single property owned and occupied by the owner throughout the year
• One property gifted to spouse (Any income earned from such property will however, be taxable)
• Land deemed for agricultural purposes
• Property which has been leased for up to 12 years

For more information on property taxes and other real estate advice, log on to PropTiger.com.