Know About Property Tax In India And How To Optimise It For Residential And Commercial Property

Property tax in India is inevitable for landowners and real estate owners. Despite its importance, many people overlook this essential expense, which can result in hefty fines and penalties. Let's delve into the article to understand what property tax is. And how to optimise it?

Residential vs Commercial
  • Tax deductions and exemptions can be claimed for interest paid on home loans in the case of residential property, while deductions are available for depreciation in the case of commercial property. 
  • The assessed value for property tax of residential property is less than that of commercial property, as residential property assessment does not incorporate income generation.

What is property tax? Why is it important to pay?

It is important to understand that property tax is not just any other tax that you can ignore. It is a civic duty that you owe to society. If you own a residential or commercial property, you are liable to pay property tax either annually or semi-annually, as per your convenience. The tax collection is done by the municipal corporations or panchayats, and the funds collected are used for various development projects.

The Income Tax Act of 1961 defines "property" as a comprehensive term that includes intangible property (patents, etc.), land, personal property, and improvements made to the land. But for assessing the value of the property, only the land and improvements made on land are taken into consideration.

The tax collected by the municipal corporations and panchayats is then used for developing amenities such as road repairs, parks, museums, etc. But failing to pay the tax on time can have severe consequences.

The authorities have the power to seize your property and even sell off goods on the premises to recover the dues if the tax is not paid within 21 days. Moreover, you cannot transfer the property to anyone until the dues are cleared. And if you have already sold the property without clearing the dues, the transaction will be considered null and void.

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How to optimise your property taxes in FY 2024?

Paying property tax is crucial to keeping yourself away from unnecessary civic liabilities. As a property owner, it's essential to understand the intricacies of property tax, especially when it comes to commercial property.

The commercial property taxes are calculated based on a combination of assessed value and income generated by the business, where future earning capability may also be taken into account, making the tax burden significantly higher than that of residential property.

Navigating the complex tax laws in India can be daunting, and it's highly recommended that you consult with a qualified tax advisor before filing your returns. This way, you can minimise your tax liability and make the most of the available deductions effectively and ethically.

Yes, you heard it right. There are certain deductions and exemptions available that reduce the tax liability ethically and legally. For example, there is a provision in which exemptions and deductions are given to the extent of interest paid on home loans for residential property. And to the extent of depreciation in the case of commercial property.

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Paying off property tax is a civic responsibility of every landowner in India, as it helps civic authorities to conduct citizen welfare projects. However, paying property tax is not optional; it is an unavoidable obligation.

Failure to do so can lead to severe consequences, such as property seizure or legal action. By creating a separate room in your budget for property tax, you can avoid all these unnecessary troubles. Not only will it make your budget more effective, but it will also help you plan your expenses better.

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