Property tax: Fairer paying field

MUMBAI: Mumbai's property tax system is set to become simpler, fairer and easier to understand starting from April 1, 2010. However, the new capital value system, which will replace the rateable value system, will be introduced in phases across the city.

For many Mumbaikars, the property tax they pay the Brihanmumbai Municipal Corporation (BMC) is a mystery. They have no knowledge of the calculation or why it can be so skewed for different properties. While residents of pre-1940s' constructions pay less, those living in newer constructions comparatively pay through their noses and wonder if they get the required services in return.

All this should begin changing next year. Under the present system, the rent a property can fetch is used to calculate the rateable value, a percentage of which is the property tax. However, rents are frozen.

A property's rent is taken as the rent it could fetch the first year it was built. For pre-1940s' properties, the rent is the amount it was when the Maharashtra Rent Control Act came out in 1946. In a system of frozen rents, the BMC has kept increasing the property tax rate to increase collections.

The tax rate is 83.5% for buildings with water meters and 187.5% for buildings, usually older ones, without meters. The difference is largely because buildings with meters pay water charges separately, however the system has led to some residents of older buildings paying as low as 20 paise per square foot, while newer buildings can pay as high as Rs 4 or Rs 5 per square foot.

In the capital value system, the value-a percentage of which will be the property tax-will be based on the actual property value. The figure will be mostly based on the stamp duty Ready Reckoner which the government brings out every year. Older buildings will get a concession for depreciation. "The concession will apply to buildings more than five years old. For deciding the exact concession, we are appointing an expert,'' said a senior civic official.

Of note is that the BMC has already phased in the new system by using the Ready Reckoner for some properties built since 2005.