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October 27, 2020

Income Tax Department Commits Property Tax Default worth Rs 26 Lakh

by CA Shivam Jaiswal in Income Tax

Income Tax Department Commits Property Tax Default worth Rs 26 Lakh

Taxes are the primary source of income for a government, with the taxes earned dictating the resources available to citizens. However, it recently came to light that the government departments also are evading the payment of taxes, when it was revealed Income Tax department has not paid property tax worth Rs 26 lakh.

What do you mean by property tax?

Property tax is the amount that is paid by the land owner to the municipal corporation or the local government for his/her area. The tax must be paid every year. Every property is an asset which is taxable, and the property tax is an annual amount paid by a property/land owner to the government. This tax could be paid either to the local state government or Municipal Corporation, depending on government policies.

Who is required to pay property tax in India?

  • Anyone who owns a property has to pay property tax to the government authorities to avail of basic civic facilities available in and around the property.
  • However, certain categories of properties or owners are exempt from paying tax or are required to pay at a lower rate compared to others. For instance, typically, agriculture land or property used for worship are exempt from paying this tax. Similarly, there is a rebate for property owners who are senior citizens, women, disabled or ex-serviceman, among others.
  • Late payment often attracts a fine and interest based on the amount due.
  • The liability of paying the tax rests on the owner of the property and not on the occupier.
  • It is important to note that income payable to the income tax department under the head ‘income from house property’ is distinct and different from the payment of property tax to the municipal authorities.

How is property tax computed?

There are three systems for calculating property tax. Different municipal corporations adopt different systems and assess the tax due accordingly.

  • Annual Rental Value System – This system bases the amount of tax payable on the annual ‘rentability’ of a property as fixed by the municipal body. It does not refer to actual rent collected on the property, but rather uses the capacity of gross annual rent that it can be expected to bring from being let out. Various factors such as size of the property, location, amenities available, etc. are looked into while determining the annual rental value.
  • Capital Value-based System – Here, the market value of the property is used as the basis on which property tax is levied. The market value of different properties is determined by the government and revised annually, based on the ward in which it is located.
  • Unit Area Value System – This system fixes price per unit value of the built-up area or carpet area of the property. Based on this price, the expected returns from the property are calculated.

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Some municipal corporations provide certain exemptions from payment of property tax based on factors such as age (super senior citizens), location (famine-affected areas), net income of the individual, type of property, etc. It is best to thoroughly check with the local administration for such details and assess the value of the property with caution.

How is one supposed to the pay property tax in India?

  • In India, municipal taxes can be paid online on the respective state government or municipal authority websites.
  • In order to pay, you need to have various details of the property you own like the property tax number, house number, type of property, complete address, bank details and so on.
  • Property tax can also be paid offline at the offices of the municipal corporations or designated banks in partnership with the authorities.
  • Property tax needs to be paid annually. Some municipal authorities also allow paying it semi-annually.

Non payment of Property Tax by Government Departments

  • As many as 2,706 government departments owe the municipal corporation (MC) Rs 82.07 lakh in tax and the Income Tax department itself has not paid property tax worth Rs 26 lakh.
  • The UT administration, CBI and ITBP are some of the other names that have defaulted on their taxes.
  • Some of these departments have been issued notices for the first time.
  • The offices of the Chandigarh administration, Punjab and Haryana government, central government, defence, BSNL, CBI, ministry of environment, forest and climate, have been served notices to pay the tax.
  • Since a majority of these properties have quarters for their employees, they have been asked to pay the money to the civic body. They should have ideally paid the tax on their own but as they failed in doing so, the Municipal Corporation had to send them tax notices.
  • Recently, the MC sent a Rs 26 lakh property tax notice to the IT department of the central government. It has been given time till October 31 to pay the tax. The engineering department was also served a notice earlier.
  • As their arrears were also pending, the calculation was given to the CP-3 wing of the engineering department to pay the money. The civic body had assessed 83,390 residential properties and identified 8,455 people who have not paid Rs 7.90 crore in property tax.

All of them should have made their payments by July-end, the end of the two-month rebate period the civic body had set. Almost three months down the line, the civic body has started the process to recover the dues. However, they will now end up paying penalties and other charges too.

Earlier recoveries by the BMC pertaining to property tax

  • The Mumbai civic body on February 2020 had seized two helicopters of a private airline company for defaulting on paying the property tax worth over Rs 1.64 crore.
  • The helicopters of the Mesco Airlines were seized from the Juhu Aerodrome.
  • Besides launching an awareness drive, the Brihanmumbai Municipal Corporation (BMC) had decided to seize the movable properties of the defaulters for the recovery of pending property tax dues.
  • The civic body can even seize valuables, including air-conditioners, television sets, and furniture, from defaulters if they fail to pay their tax dues.
  • Since 2016, the civic body started disconnecting the water connections of defaulters for a period of three weeks to recover the tax dues, besides sealing lifts and entrance to the properties.
  • Earlier during the presentation of the budget for FY 20-21, BMC Commissioner Praveen Pardeshi had said the property tax dues have accumulated to the tune of Rs 15,000 crore. In 2019-20, the BMC had set the target to collect property tax worth Rs 5015.19 crore, but it could collect only Rs 1387 crore till the end of November, 2019.

It is important to remember that the property tax adds to the municipal funds, out of which salaries of municipal workers, such as those who sweep the road or maintain the sewage system of the area, are paid out. If someone fails to pay property tax on time, some municipal corporations initially give a show cause notice to recover the dues. If someone fails to pay it even after the notice, the authority can recover the same by way of attachment of property, bank account, rent and all moveable properties, but such steps are typically taken in extreme cases. Wilful default may also attract imprisonment.

Moreover, there is a penalty for late payment or default. One will have to pay a fine in the form of penal interest on the amount due. The rate depends on the respective authority.

So, do make sure you pay your property tax on time.

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