If you intend to earn high rentals by leasing out your new residential or commercial property, think again.The BMC has proposed a new capital value-based property tax system that, in all likelihood, will hit the leave-and-licence business and self-occupied and vacant ownership properties in both the island cityand the suburbs.
The proposal has done away with any differentiation in the property tax levied on owner-occupied or tenant-occupied premises with respect to new buildings, or those occupied after April1,2010, in both residential and commercial segments.
While the new tax plan may curb hoarding of properties for high rentals,the proposal to levy a certain percentage of tax even on amenities such as a dry balcony,a swimming pool and a gymnasium would add to the buyer's cost too.
According to the BMC proposal, property tax would be computed at 1.95% of the capital value for offices,3.91% for banks,and 0.41%for residences where there is a metered water connection.The rate of tax would be as high as 8.44%of the capital value in old buildings that do not have an occupation certificate or a water connection.
The new tax would be calculated on the basis of the current market value of the property (the capital value) based on four factors-price,area,age,and the type of property.
Currently,Mumbaikars are charged according to the rental value of their property;in other words,property taxi s calculated on the basis of the hypothetical rent it would fetch. The proposed tax is very high compared to the 0.19%tax for all properties recommended in a report submitted by the Tata Institute of Social Sciences,the BMC-appointed consultant.
Property experts estimate that taxes for new residential buildings would translate into as much as Rs 20.24 per sqft per month,which means Rs20,240 for a 1,000-sq-ftflat.The lowest would be in the Borivli area whereone would have to shell out Rs2,690 at Rs2.69 sqft per month for 1,000-sq-ft flat.
Similarly, for new offices, the highest municipal tax would be Rs120 per sqft or Rs1,20,000 for1,000sqft; and the highest municipal taxf or banks would be at Rs290 persqft or Rs 2,90,000 for 1,000 sqft.The proposed tax is several times higher than that in Delhi,Hyderabad,Bangalore and Kolkata.
The BMC's chief assessor and collector SHatkar admitted that since tax would be computed on the basis of rates recorded in the ready reckoner,Mumbaikars would have to pay a higher property tax." Suburbs may benefit as the government is likely to increase the FSI, so the hike would not be so much. The new rule seeks to breach the huge gap in taxes paid by the suburbs and the city and bring them on par,"said Hatkar."We have, infact, ensured residential property is protected from the hike by putting a cap. So, redevelopment of cessed buildings will not be affected."
The assessor denied that the new rules would affect the leave-and-licence business."Our experience has not been good in such matters.The civic Act does not specify the reasonable rate at which property tax should be calculated in rented premises. As a result, licences would challenge the reasonable rate at which the civic body has computed the tax in courts.We,thus,decided to remove the differentiation between a rented or owner occupied property andl evy tax equally,"Hatkar said.
Referring to facilities such as watchmen's cabin and the dry area,which are included in the built-up area,the assessor said t he recommendation was based on the advice of the expert committee appointed to finalize the rates.
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