Property tax relief for new city bldgs

Mumbai: Succumbing to pressure from citizens, the BMC on Thursday tabled a watered-down property tax system before the standing committee, ensuring that taxes will be lower than those proposed earlier. Residents of pre-1996 buildings will see rates double, while those living in buildings built from 1996 to 2004 will see rates rise by 10 to 70%. Residents of newer buildings, those built after 2004, will see rates drop 30 to 60%. 

    The new tax system – which will be in effect from April 1, 2010, when the BMC started giving provisional bills – has been brought in to rationalize taxes. 

    Under the former, ratable value system, property tax was calculated according to the rent a unit commanded during the first year of its existence. New system based on Ready Reckoner rates 

Mumbai: Since the old system was based on the first-year rents, older buildings paid far lesser taxes than newer ones, until the property tax chart became lopsided. Older buildings, especially those in the island city, paid much lower taxes than many suburban constructions. 

    The civic standing committee on Thursday approved the new capital-value system, which bases taxes for all buildings (old and new) according to 

the Ready Reckoner rate. Bills will be issued retrospectively within the next three months. The civic body will return the excess money charged in provisional bills with 6.25% interest. 

    The watered-down taxation system for residential units will be based on a formula that takes into account 0.00348% of the Ready Reckoner rate and not the proposed 0.00412%, which had been struck down by the standing committee earlier this year. 

    The new rates will affect 6.62 lakh residential units of the 14 lakh in the city. Of the 6.6 lakh units, 3.87 lakh (or 27% of 14 lakh) will see reductions ranging from 30-40% and 50-60%. The reduced rates will especially benefit buildings that came up after 2005. Redeveloped buildings will be treated as new buildings. 

    Another 2.75 lakh units (19%) will see property rates rising up to 100%. Most are old houses that pay Rs 2,000 a year in tax; their rates will increase to Rs 4,000. The maximum number of such structures are found in the Andheri-Parle (West) area (50,000), the Bandra-Khar-Santa Cruz (West) area (34,000) and the Esplanade-Fort-Colaba area (11,000). 

    The remaining 7.4 lakh of the city's 14 lakh units are less than 500 sq ft (including in slums and chawls) and hence won't see any change in billing. 

    The buildings that will see lower increases or reductions are those that mushroomed after 1995, when the slum rehabilitation scheme was announced. Around 1998-99, buildings started mushrooming in Bandra, Khar, Santa Cruz, Andheri, Malad, Kandivli, Borivli and Dahisar. Around 2004, suburban Goregaon began getting new buildings. 

    In the island city, cessed buildings began to be redeveloped around 1998-99. Around 2004-05, mill areas in Dadar, Worli and Parel saw development. At the same time, Malabar Hill and Nepean Sea 

Road began getting new residential buildings. 

    The upside of the new system is that citizens can calculate their own taxes and pay them online. The civic body, which hopes for a better recovery, aims to increase revenue collection by Rs 356 crore. Currently, it collects Rs 2,800 crore from 55% of the properties. Officials are hopeful for an 85% recovery. (See box for payment formula.) 

    The suburbs will benefit more, said officials, due to the presence of more new buildings. However, the overall impact of the new system, said officials, will take some time to be ascertained. "As of today, we have just fixed the rate of property tax at 0.00348 % However, its area-wise impact across the suburbs will take time to be assessed. This, however, is auniform rate that doesn't differentiate between the suburbs and city, and hence the difference in rates will reduce," said an official. 

    Additional municipal commissioner Rajiv Jalota said the new system would ensure transparency since citizens will compute their own taxes. "People will be able to verify and calculate the taxes based on their property. This should ensure better recovery," he said. 

    The BMC is deliberating a suggestion to not issue a penalty for delay in payment of taxes this year and is likely to extend the due date to March 2013. 

RATIONALIZING THE TAX 

    Till now, property taxes were based on the rent a unit attracted during the first year of its existence. Buildings built in the 1940s and earlier, paid according to rents frozen in the 1940s 

    As rents ballooned, newer buildings paid higher taxes 

    With all buildings (old and new) now paying tax according to the Ready Reckoner rates, taxes will be rationalized. Older buildings will see increases, newer buildings reductions 

CALCULATING THE NEW TAX 

    Capital value = Built-up area in sq m* x Ready Reckoner rate x user type (residential or commercial) x construction type x age x floor Property Tax = Capital value x 0.00348% of Ready Reckoner rate * Carpet area x 1.2