Property Tax vs Municipal Tax: Understanding the Difference
Jun 10, 2023Home Ally

Property Tax vs Municipal Tax: Understanding the Difference

by Godrej Properties Limited



Unravelling the Distinction between Property Tax and Municipal Tax

Property owners often come across the terms "property tax" and "municipal tax," which can sometimes be confusing. While these terms are related to taxation, they refer to different aspects of local governance and finance. In this blog, we will unravel the distinction between property tax and municipal tax, providing property owners with a clear understanding of these concepts and their significance.

Property Tax vs Municipal Tax

Property Tax: A Tax on Real Estate

Property tax is a tax imposed on the value of real estate properties, including residential, commercial, and industrial properties. The tax is typically levied by the local government or municipality and is based on the property's assessed value. Property tax revenue is an essential source of income for local governments. 

Property Tax - Types, Calculation & Payment

Property tax is a crucial revenue source for municipal governments in India, applicable to various tangible assets owned by individuals, including residential and commercial properties.

Property Tax Types

Movable Property: This category includes movable assets like vehicles.

Land: Refers to vacant land without any construction.

Building: Encompasses constructed structures like houses, offices, or warehouses.

Intangible Property: Includes non-physical assets like patents or copyrights.

Property Tax Calculation

Property tax calculation typically follows a formula:

Property Tax = Base property value x Type of building x Age factor x Floor factor x Category of use x Built-up area

Factors considered include location, occupancy status (self-occupied or rented), property type, amenities, year of construction, construction type, floor space index, and carpeted square area.

Property Tax Online Payment

Paying property tax is now simplified through online platforms:

  • Log in to the municipal corporation's official portal.
  • Choose 'Property Tax' and proceed to payments.
  • Fill out the tax form, select the assessment year, and pick a payment method (debit/credit cards or net banking).
  • After successful payment, you will get an electronic challan.

Interest Rates on Property Tax

Property owners must pay property tax on time to avoid additional interest charges. The interest rates vary by location and municipality, typically from 5% to 20%.

Municipal Tax: Funding Local Services

Municipal tax, or local or municipal corporation tax, is a levy imposed by the municipal corporation or local governing body. It is a tax on various activities and services provided within the municipality's jurisdiction. The revenue generated from the municipal tax is utilised to fund essential local services, such as sanitation, street lighting, road maintenance, water supply, waste management, and other civic amenities.

Role of Municipalities in Property Tax

Municipalities assess property taxes for local properties, with payment options available annually or semi-annually. Revenue collected from property tax plays a pivotal role in funding the development and maintenance of essential local amenities such as roads, parks, and sewer systems.

Key Differences: Property Tax vs. Municipal Tax

  • Tax Basis: Property tax is based on the value of real estate properties, while municipal tax is imposed on activities and services provided.
  • Taxpayer Responsibility: Property tax is the responsibility of property owners, who pay taxes based on assessed property value. The municipal tax applies to individuals, businesses, and organisations.
  • Revenue Utilisation: Property tax funds public services, infrastructure, and community programs related to the property, while municipal tax supports local services and amenities.
  • Assessment Authority: Property tax assessments are conducted by the local tax authority or assessor's office. In contrast, municipal tax may be assessed and collected by the municipal corporation or local governing body.

The final word: Understanding the Distinction

Understanding the difference between property tax and municipal tax is essential for property owners to have clarity on their tax obligations and the purpose of these taxes. For example, property tax focuses on the value of real estate properties, while municipal tax contributes to funding local services and amenities within the municipality. By grasping this distinction, property owners can ensure compliance with their tax obligations and gain insights into local governance.

Frequently asked questions

1. Can property tax and municipal tax be paid together?

Ans. Property and municipal taxes may sometimes be billed together, primarily if the same local governing body administers both taxes. However, it is also possible for these taxes to be billed separately. 

2. Do property tax rates and municipal tax rates differ?

Ans. Yes, property tax rates and municipal tax rates can vary. The rates for property tax are typically based on the property's assessed value. In contrast, municipal tax rates may be determined based on the specific activity or service being taxed.

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