Property Tax

Introduction

The Municipal Corporation
of Greater Mumbai (“BMC”) has revised the Property Tax system applicable in the
city of Mumbai. Instead of the earlier rateable value system which was in
force, the property tax was quite low and remained constant for years together.
However, the BMC now has a Capital Value System for levying property tax which
levies tax on the basis of the Stamp Duty Ready Reckoner of the property. This
system is expected to garner substantial revenue for the BMC as it would link
the values to more realistic figures instead of the rent capitalisation values
which were quite low.

Capital Value based System

Under the new system,
property tax is computed as a percentage of the Stamp Duty Ready Reckoner Value
of the property. Currently, the Reckoner of 2015 is adopted as the basis for
this purpose. This value would be adopted for a period of 5 years starting from
1-4-2015. Hence, the capital value would remain unchanged for 5 years, i.e.,
till 2020. After 5 years, as per the present system the Reckoner Rates would be
increased. However, if a building is constructed after 2015, then the Reckoner
rate of the year in which it was constructed would be adopted and would remain
in force till 2020. The rates for levying tax on this capital value depends
upon the Category of the property and are as follows:

–    Residential
with metered water supply in City and suburbs @ 0.359%

–   Residential
with un-metered water supply in City @ 0.775%

–    Residential
with un-metered water supply in suburbs @ 0.552%

–    Shops
/ commercial / industrial with metered water supply in City and suburbs @
0.880%

–    Shops
/ commercial / industrial with un-metered water supply in City @ 1.90%

–   Shops
/ commercial / industrial with un-metered water supply in suburbs @ 1.280%

–    Open
Land with metered water supply in City and suburbs @ 1.630%

–    Open
Land with un-metered water supply in City @ 3.518%

–    Open
Land with un-metered water supply in Suburbs @ 2.370%

In
addition, the BMC has exempted houses in the city with a carpet area up to 500
sq. ft. from property tax. The BMC is also considering passing a proposal for
concession in property tax for houses measuring between 500 sq. ft. and 700 sq.
ft.

The BMC has announced that
soon, personalised property tax bills will be issued, to the people who own
flats in those buildings that have Occupancy Certificates (OCs). However,
property tax of the unsold flats and common areas, will be paid by the builder.
Under the earlier system, the BMC issued a common property tax bill to a
housing society, which then collected the tax dues from the flat owners and
paid the amount to the BMC. The main problem with the earlier system, was that
if a member failed to pay the property tax, then, all the members were
penalised. Now, in the personalised property tax billing system, this will
stop.

Valuation Rules

Valuation of Open Land

Capital Value of open land,
i.e., land which does not have anything built upon it and which is not
appurtenant to a building is computed as follows: Value of open land under the
Reckoner * Weightage of user category * FSI permitted * Area of Land. The
weightage factor is given separately in Schedule A to the Rules for different
types of properties.

Valuation of Building / Flat

The Rules for valuing a
building / flat / premises for computing property tax are as follows:

(a) Capital Value of a Building / Flat is computed
as follows:  Value of building under the
Stamp Duty Ready Reckoner * Weightage of user category (depending upon whether
the building falls under Part II, III or IV of Schedule A) * Weightage for Age
of Building * Weightage for Floor factor for Lift * Carpet Area of Building.
The weightage factors are given separately in Schedule A for different types of
properties.

There are eight major steps
to using the Stamp Duty Ready Reckoner which are as follows:

(i)      Find out the Village Number and Village
Name in which the property is located;

(ii)      Ascertain the Zone and the Sub-Zone;

(iii)     Find out the CTS No. of the property;

(iv)     Determine the type of property, e.g.,
Residential, Office, etc.;

(v)     Calculate the Carpet Area of the Flat /
Office. Stamp Duty is paid on the basis of Built-up Area but for Property Tax
the Carpet Area is adopted;

(vi)     Find out the Market Value for the type of
Property;

(vii)    Ascertain if there are any Special Factors
as prescribed in the Reckoner;

(viii) The
Market Value of the Property for Stamp Duty purposes = Adjusted Fair Market
Value * Carpet Area of the Property

(b) The following are the weightages given while
valuing a building or a flat or office:

(i)  User category

(ii)  Nature and type of building~ weights have been
assigned for open terrace, dry balcony, porch, etc.

(iii) Age of building

(iv) Floor factor of building with Lift

For
instance, in the case of a residential building the Schedule provides some
weightages in the following manner:

(c) The formula for
computing the Capital value of a Building is prescribed as follows:

CV = BV *
UC * NTB * AF * FF * CA

Where

CV = Capital Value of a
Building

BV = Base Value of the
building as per the Stamp Duty Ready Reckoner

UC = User category of
residential, shop, open land, etc.

NTB = Nature and Type of
Building, i.e., RCC, semi-pucca, etc.

AF = Age Factor
Depreciation

FF = Floor Factor
Adjustment for Building with Lift

CA = Carpet Area

(d) Some examples of computation of the capital
value of a property is as follows:

Illustration
-1: Carpet area of a Residential flat of 1000 sq.ft.on the 5^th
floor of a RCC constructed building at Colaba. The building is 40 years old and
as per the Reckoner of 2015, it falls in Zone 1/3 where the rate for
residential building is Rs. 497,500 per sq. mt. The weightages of various
factors would be as follows:

Thus, the Capital Value of
the Flat would be worked out as under:

497,500 * 0.50
*1.00*1.05*0.65* 92.90 =Rs. 1,57,71,807

On this Capital Value, the
Property Tax for a Residential property @ 0.359% would be Rs. 56,620 per year
or Rs. 4,718 per month.

Illustration-2:
Carpet area of an Office is 10,000 sq.ft. and is located on the 15th floor of a
RCC constructed building at Bandra Kurla Complex. The building is more than 10
years old and as per the Reckoner of 2015 it falls in Zone 31/72 where the rate
for an Office is Rs. 155,300 per sq. mt. The weightages of various factors
would be as follows:

Thus, the Capital Value of
the Flat would be worked out as under:

155,300 * 0.80
*1.00*1.10*0.90* 929.02 =Rs. 11,42,67,230

On this Capital Value, the
Property Tax for an office property @ 0.880% would be Rs. 10,05,551 per year or
Rs. 83,796 per month.

Conclusion

The Capital value based
Property Tax system is based on the Ready Reckoner and hence, suffers from the
same flaws which the Reckoner is infamous for. However, a good part is that for
residential properties, only 50% of the reckoner rate is adopted. Nevertheless,
double rates for the same property, non-consideration of various factors, such
as, differences in areas / properties, condition of flats, etc., would
all apply even to this system.