Mridul KumbalathPartner
Arnav NagaliaCounsel
Rajat Deepak KalalAssociate
Key Developments
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Bengaluru Corporation overhauls the methodology for property tax calculation
The Government of Karnataka notified the Bruhat Bengaluru Mahanagara Palike (Amendment) Act, 2024 (Amending Act) on 7 March 2024 through which the Bruhat Bengaluru Mahanagara Palike Act, 2020 (BBMP Act) was amended. By way of this Amending Act, the method of calculating the property tax on lands and buildings situated within the limits of Bruhat Bengaluru Mahanagara Palike (BBMP) is now to be based on the guidance value of the immovable property (in case of land/property) and the cost of construction (in case of buildings). This is a departure from the earlier system which was based on the average rate of expected return from the property which was calculated considering the zone in which the property was located, as determined by the BBMP. The revamped system aims to standardise property tax calculation in Bengaluru by directly linking it to the property's guidance value. This approach, already used statewide, ensures a transparent and consistent methodology based on established rules and rates prescribed by the Central Valuation Committee under the Karnataka Stamp Act, 1957.
The Amending Act allows for BBMP to levy property tax at a percentage of the ‘taxable capital value’ of immovable property (TCV). TCV is the product of the ‘unit area value’ of the immovable property (UAV) and the extent of the vacant land/built-up area of the building, for a period of ten months. UAV is the guidance value of the property or land, and for buildings standing on a plot, the value of the building based on the per square footage construction cost minus depreciation.
The key features of the amendments are discussed below.
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Calculation of property tax
- The percentage at which property tax will be levied needs to be passed by the BBMP by way of a resolution. However, such percentage has a cap and collar of 5% and 0.025%, respectively, in the case of vacant land and a cap of 10% for all other properties.
- Depreciation in respect of a building is calculated at 3% per year depending on the age of the building, subject to a cap of 60%.
- The UAV is required to be published in the official Gazette, only after which will it come into force.
- The property tax will be escalated by 5% every year from the date the new system is brought into force provided there is no revision in the guidance value of immovable property in that year. If there is a revision in the guidance value, the property tax will be calculated based on the rates considering the higher guidance value of immovable property.
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Penalties and interest
- In case (i) any property is liable to property tax but remains unassessed and outside the taxable property records list, or (ii) upon re-assessment, the property tax is found to be more than 5% than the tax remitted, a penalty equal to the amount of the evaded tax will be payable. This is a reduction from the earlier penalty of twice the evaded property tax.
- In addition to the penalty, an interest at 9% per annum is also payable on the evaded tax calculated from the due date.
- For properties that are in the property tax registers but on which the property tax has not been paid by the end of the financial year in which the tax is due, an interest of 15% will be charged on the outstanding tax for the first year after the end of the financial year in which the tax is due or till the date of payment, whichever is earlier. If the tax remains unpaid beyond the first year after the financial year in which the tax is due, interest will be chargeable at 9% per annum along with a penalty equal to the unpaid tax.
- In the case of residential properties and properties with a single ID in the property tax registers of the BBMP that have mixed use as residential and non-residential, the above-mentioned penalties and interest will be limited to a maximum period of five years.
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One-time settlement
As a one-time measure, the Amending Act has exempted the interest on account of non-payment of property tax till 31 July 2024.
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The percentage for calculation of property tax and the UAV are yet to be notified. Therefore, the property tax within the jurisdiction of the BBMP is still being calculated based on the earlier methodology (namely, the average rate of expected return from the immovable property). However, the other provisions of the Amending Act are already being enforced by the BBMP, providing relief to taxpayers as it reduces their liability on account of earlier defaults in payment of tax as outlined above.
