The Basics of Property Tax

The Basics of Property Tax

Property taxes are the most important source of revenue for local governments, as they fund schools, streets, roads, police, and fire protection, among other things. Local officials use Texas law to determine the value of a property, ensure that valuations are equal and uniform, set tax rates, and collect taxes.

Key Takeaways

  • Property owners are responsible for paying a property tax that is computed by the local government where the property is situated.
  • Property tax is based on the value of the property, which might be real estate or tangible personal property in various countries.
  • Water and sewer improvements are funded via assessed taxes.

Calculation of Property Tax

The following is the formula for determining property tax:

Property tax = base value × built-up area × Age factor × type of building × category of use × floor factor.

Property taxes in India vary depending on where the property is located, with rates ranging from state to state. Different municipal companies compute tax in different ways, but the overall overview of such computations is the same and is discussed here.

The property is first evaluated by determining its location, occupancy status (whether it is self-occupied or rented out), type of property (residential, commercial, or land), amenities provided (car park, rainwater harvesting, store, etc.), year of construction, type of construction (multi-story/ single floor/ pukka or kutcha structure, etc.), Floorspace index, and carpeted square area.

Once these conditions have been established, the civic agency can compute tax using whichever methodology it seems suitable. A different formula is used by various agencies.

The tax on a property will vary depending on the elements listed above and may be readily calculated online via the municipal corporation’s official website.

Different Methods of Calculating Property Tax

In general, local governments calculate property taxes using one of the three techniques listed below:

a) System of Annual Rental Values

The amount of tax payable is determined by the annual ‘rentability’ of a property as determined by the local government. It does not relate to the actual rent received on the property, but rather to the gross yearly rent capacity that may be expected from being rented out. The municipal corporations of Chennai and Hyderabad also use this approach. When evaluating the yearly rental value, a variety of criteria are considered, including the size of the property, its location, and the facilities provided.

b) System based on capital value

The market value of the property is used to determine the amount of property tax to be collected. The government determines the market value of various properties and revises it annually based on the ward in which it is located. The Brihanmumbai Municipal Corporation, for example, has shifted to this approach and now publishes a ‘Ready Reckoner’ of the city’s fair value property pricing.

c) Value System for Unit Areas

This approach establishes the price per square foot of the property’s built-up or carpeted space. The estimated property returns are determined based on this pricing. New Delhi, Bangalore, Kolkata, Hyderabad, Patna, and Ahmedabad are among the cities that have implemented this system.

Some municipal corporations provide property tax exemptions depending on characteristics like age (ultra elderly people), geography (famine-affected areas), individual net income, property type, and so on. It’s essential to double-check such information with the local government and proceed with care when determining the property’s worth.

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