A Change Likely To Be Seen in Mumbai’s Property Taxes

It looks like the property tax in Mumbai is soon going to be placed on a logical and rational basis. In all likelihood an amendment to the BMC or the Brinanmumbai Municipal Corporation Act of 1888. The amendment will see a shift of the calculation of property taxes from the current ratable value system to one that is based on the capital value of the property.

The two ways of in which property tax can be calculated are the ratable value, which is the rent that the property would be likely to get and the other is the capital value of the property.

The current problem in Mumbai’s case is that acts such as the Rent Control Act, amongst others were creating severe distortions where property rents were concerned. With this Rent Control Act, South Mumbai property rents, especially the older buildings were frozen at the 1940’s level. Thus since this was the case, the BMC were not in a position to charge a higher property tax.

So what was happening is that South Mumbai properties which are several times higher than the suburban properties were hardly paying anything in property tax. While the suburb properties was charged around 115% of the rent that the property would probably get.

This amount was not only obscenely high, it was unfair and also affected the BMC finances. The BMC were hardly making anything as against what they could have been making with such expensive properties.

Ten years ago, there was a move to resolve this imbalance when the Tata Institute of Social Sciences along with the Mumbai University conducted a study and proposed a change to the capital value based system. However the moves was opposed and did not go through.

Now, after a lot of discussions it is believed that the joint committee of the Maharashtra legislature has come out with something that appeases everyone.

According to this new recommendations, the flats that have an area of 500 square feet carpet area, are not going to see any increase in property tax at least for the first give years that the capital value based system is enforced. Thereafter, a hike may be possible, however this will not be more than 40 per cent of the tax in the previous years.

Another thing that will be enforced is that all properties including rented, self owned or leave and license will be assessed at the same rate.

The formula of this capital value system of tax is Rate of Tax multiplied by capital value of the property X the area of the building X usage of the building, along with the age of the building and the type of construction. The rate of tax will be 0.45% of the capital value of the property, per year – under this new system.

This current monsoon session will see the final assent to the bill, its just a matter of time now.