Property Tax - Part 1

What is Property Tax?

Taxes are the primary source of profits for a government, with the taxes earned dictating the resources available to citizens. Every belongings is an asset that is taxable and the property tax is an annual quantity paid by a assets/land owner to the government. This tax may be paid both to the local country government or Municipal Corporation, relying on authorities regulations.

Property Tax

The phrase “belongings” on this context refers to all tangible real property beneath the ownership of an individual and includes homes, workplace buildings and premises rented to third parties. Property tax, as a concept has been around for centuries and is recounted throughout the globe, with statistics of farmers and peasants paying tax on their homes even inside the center a long time.

Property Tax in India:

Brief History:

Property tax has a deep rooted records in India. Kings could levy a small tax on farmers and landowners, which would be used to beautify the treasury of a state. The creation of the British delivered in a greater streamlined manner, with land sales forming a major chew of the British treasury. They devised a machine of centralization with admire to land tax, appointing individuals to accumulate tax on behalf of the crown. This gave birth to tax collectors and a proper tax collection gadget in the united states.

Types of Property:

Property, in India is classed into four classes, which assist the government estimate tax based totally on positive standards. The specific assets divisions inside the country are noted beneath.

Land – in its maximum fundamental shape, without any construction or improvement.

Improvements made to land - this includes immovable artificial creations like buildings and godowns.

Personal belongings – This consists of movable guy made items like cranes, motors or buses.

Intangible assets

Present State of Property Tax:

Property tax in India is to be paid on “real property”, which incorporates land and improvements on land, with the authorities appraising the economic value of every such belongings and assessing the tax in proportion to its cost. It is the obligation of the municipality of a selected place to do that evaluation and decide the belongings tax, which can be paid either on an annual or semi-annual foundation. This tax quantity is used to develop local facilities such as avenue repairs, preservation of parks and public colleges, and many others. Property tax varies from vicinity to location and can be special in exclusive cities and municipalities.

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Tax Deductions in opposition to Income from Property

Section 24 is titled as “Deductions from earnings from house assets”. ‘Income from house belongings’ is applicable inside the following instances:

If you're renting out your private home(s), then the lease obtained could be considered as part of your profits

If you have got greater than 1 house, then the Net Annual Value of the homes, besides the house you're dwelling in, will be considered as your profits.

If you own most effective 1 residence and you are living in it, the earnings from house assets may be considered as NIL. Any profits derived from rent and annual value of additional homes, might be difficulty to tax after deductions made beneath Section 24.

Deductions beneath Section 24

There are 2 types of deductions under Section 24 of the Income Tax Act:

Standard deduction: This is an exemption allowed to each taxpayer, wherein a sum identical to 30% of the internet annual price does no longer come beneath the tax limit. This is not applicable if you are occupying the only residence you own.

Interest on mortgage: If you have got taken a home loan for buy, construction or upkeep of the house, whatever hobby you pay at the principal quantity of the loan is exempted from tax charge. The sub-clauses in this category are:

If the loan has been taken for a self-occupied belongings, then you could claim exemptions of as much as Rs.2 lakh.

If you took a mortgage for buy or construction (not upkeep) of a assets before truely buying or completing its creation, you may still declare the hobby. You can are seeking deductions at the interest paid earlier than the construction or buy is completed, in 5 equal instalments, from the year in which the residence is bought or the construction is completed.

If the loan is taken for preservation or reconstruction of a house, you can't claim tax exemption till the maintenance is completed.

To avail this deduction, you want to compute the hobby quantity you have to pay to the financial institution or financial organization which you took the mortgage from, break away the foremost reimbursement. It does no longer be counted whether you've got surely paid the amount to the financier – you could get exemption for the complete annual hobby amount.

Exceptions beneath Section 24

If the house is not occupied with the aid of you, you may claim exemption for the complete interest quantity that you are paying, with none top restriction.

If the residence isn't occupied by way of you because you live in every other town due to your employment or enterprise,otherwise you live in any other assets or rented property in the metropolis of your employment, then you can declare tax exemption on hobby payment only as much as Rs.2 lakh.

There is not any deduction for any brokerage or fee for arranging the loan or tenant.

You have to shop for or complete creation of the house inside three years of taking the mortgage for you that allows you to claim maximum deduction at the loan hobby amount. If the development or purchase isn't whole inside 3 years, you will be able to declare simplest Rs.30,000 in preference to Rs.2 lakh.

You have to have an interest certificates for the mortgage that you are taking.

Computation of Income from House Property