Taxes are imposed in virtually all nations as the government must keep the needs of its people satisfied. The government can attain these taxes through direct and indirect taxes. They can be income tax, property tax, wealth tax, or taxes in any other form.
As taxpayers, we must be informed of the various types of taxes and clear those that we are responsible for paying. Let us have an understanding of property tax and wealth tax in detail.
Property tax in India
Property Tax is also called House Tax. This tax is levied on real estate owners by the municipal bodies, including the municipality or municipal corporation, or panchayat. It is utilised towards the expenditure for maintenance of its regional community facilities such as parks, drainage, roads, and other such facilities. Being imposed on every real estate may include residential or commercial buildings, land attachments, and changes. However, it excludes vacant land which has no attached real estate structure.
How is property tax determined?
It is determined by the municipal bodies subject to the proportion of the evaluated worth of the property. Mostly three methods are there for the calculation of property taxes, namely the Capital Value System(CVS), Annual Rental Value System or Rateable Value System(RVS), and the Unit Area Value System(UAS). CVS is mostly followed in Mumbai, RVS in places like Chennai or Hyderabad, and UAS in Patna, Delhi, Kolkata, Bengaluru, and some other places.
Who is paid the Property Tax in India?
It can be paid at the office of the respective municipal body, which may include a municipal corporation (MC) office or any other office designated in that area. Sometimes, it can also be paid at the assigned banks working in association with the Municipal bodies. There is a property tax number or ‘Khatha Number’ which identifies your unique property. Also, nowadays, these taxes in India can be paid online on the said websites of the municipal body. Respective municipal bodies may also grant some exemptions from payment of the property tax depending on factors.
How is the Property tax paid?
This tax requires annual payments. Delayed payment can attract fines as interest accumulated on the amount due. The responsibility of payment is not on the occupier but the owner of the property.
Wealth Tax in India
Wealth Tax is a direct tax imposed on a person's personal assets as per the Wealth Tax Act, 1957. Its purpose is to bring about equality among the affluent and less affluent taxpayers. At present, India has no wealth tax imposed as it was removed in the Union Budget 2015, which was implemented with effect from the Financial Year of 2015-16. Now it is applied as a surcharge on those who have a higher income, and this surcharge was raised in the Union Budget of 2019. It is a 10% surcharge on Income Tax to those people with yearly income surpassing Rs. 50 lakh, but it is 15% in the case of the total income exceeding Rs. 1 crore.
Applicability of Wealth Tax
Applicability of wealth tax are individuals, Hindu Undivided Family (HUF), and companies. The factor of imposition is residential status. So even resident Indians are required to pay wealth tax for their global assets, and NRIs are also required to pay this tax for the assets which they have in India.
How is the Wealth Tax determined?
The tax imposed will be determined on the total net wealth of the person or the HUF or the company in the case where it surpasses Rs. 30 lakhs on the estimated date and the tax will be at a rate of 1%, which will be imposable on the value of more than Rs. 30 lakhs. So each person whose net wealth transcends such amount is required to furnish a return of net wealth. Its due date is the same as that of the income tax return.
What are the components of the Wealth Tax?
Its components are assets, deemed assets, and exempted assets.
- An asset is defined as a resource that is currently held and also has a projected financial gain. It may include any building or land, even a house that is given by the employer to be used solely for residential requirements where the total gross salary of the assessee is less than Rs.10 lakhs. It also includes a residential area, which is let out for at least 300 days. Commercial establishments, motorcars, jewellery, furniture, appliances, bullion, and other items made partially or wholly of platinum gold, silver, or other precious metals are also metals. It can include a yacht, boat, or aircraft except for use for trade purposes. Various types of urban lands are also in this category.
- A deemed asset is one that is, even if legally not belonging to the assessee, are considered as his assets while calculating his net wealth. It may include the assets which are transferred to the Spouse linked to an agreement to reside separately. Assets held by the minor other than procured by own or with disability are also deemed assets. A self-procured asset of the family, assets under revocable transfer, money under gifts are also considered as deemed assets.
- Exempted Assets are those assets that are not regarded as a part of wealth, and so they are not considered as part of the calculation of the wealth tax. Some of these include the property held under trust or for the purpose of charitable purposes, coparcenary property interest of HUF, and others.
Difference between Property Tax and Wealth Tax
- As understood from above, the Property Taxes are levied on real estate owners by the respective municipal bodies such as the municipal corporation, panchayat, or municipality. Its utilities as for running the respective area such as roads, upkeep of amenities and others.
- Wealth tax is again levied on people who actually belong to the more affluent section of the community and to facilitate higher-earning entities pay more taxes. Here individuals, Hindu Undivided Family, and companies are priced 1% on over Rs 30 lakh incomes.
- So the most significant variation between these two taxes is that property tax is to be paid on the property which we have acquired through purchase, and the amount is applied for its upkeep in a fiscal year, while wealth tax is obligatory on those things which are obtained in exchange of money.
- Also, the wealth tax in India is administered by the Wealth Tax Act 1957 and property tax by The Payment Of Taxes (Transfer Of Property) Act, 1949
So wealth tax and property tax were both prevalent in India until 2015 when the wealth was abrogated for various reasons, such as simplifying taxation and removing the administrative burden. Also, the cost of collection of wealth tax was becoming higher for the government.
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Q. Does the Central or State government decide on Property Tax?
Ans. Local municipal bodies decide it.
Q. Should tenants pay Property tax?
Ans. No, in India, owners are required to pay property tax. If the tenant is forced to pay, then the tenant can file a civil suit against the owner.
Q. Can there be any means to get an exemption from property tax?
Ans. Factors like Age or net income, location of the property, or vacant plot without any building attached can be considered for exemption. For example, in age, senior citizens can get exemptions.
Q. Can the assessment of the property be higher than the value of the property itself?
Ans. If you are not aware of the market value of the property. In this case, the clarification can be taken from the local municipal body.
Q. Can everyone pay property tax online?
Ans. Actually, it depends on the local area where the property is situated. The websites of the local bodies can be checked whether they have such a facility.
Q. What are common examples of assets included in the wealth tax?
Ans. They may include assets like bank deposits, cash, shares, personal cars, fixed assets, the evaluated value of the real property, a pension plan, or monetary funds.
Q. What are the exemptions in case of a wealth tax?
Ans. If you incur debts to obtain the asset, then it shall be recognised as a deduction while computing the net wealth. Again, assets that on the elimination of cash are held for its trade do not include the ambit of wealth tax.