Property tax is inevitable for every homebuyer. The value that the person pays propertytax varies based on various factors such as the State in which it is located, the available amenities, the locality of the property, the age of the house on the property, access to the public services such as bus station, railway station, airport, etc. Thus the value quoted on a property depends on many factors and the municipality or the local government body imposes tax after conducting an assessment of your property. When financing is done through a mortgage or bank loan, you may be paying your property tax along with your monthly installment.
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At what age do you stop paying taxes on your home?
According to Indian tax laws, there is currently no complete exemption from the tax payable on your home. However, certain reductions are offered to the homeowners under the Income Tax Act under sections 24 and Section 80 of the Act. Senior Citizens are also not exempted from their liability to pay tax on the property but granted deductions.
Section 24 deals with the benefits that have been provided to homeowners on the interest in case he has availed a bank loan to finance his property. The homeowner is also exempted from tax if he has rented out his property without any limit while a homeowner of the self-occupied property is eligible for a deduction up to Rs. 2 Lakhs every financial year during which payment of tax is being made.
The Income Slab according to the Income Tax Act has differentiated people based on two categories such as senior citizens and non-senior citizens. Senior Citizens are further divided as senior citizens and super senior citizens. The senior citizens of the country are given a tax exemption up to an amount of Rs. 3 Lakhs while super senior citizens are provided with a tax exemption up to Rs. 5 Lakhs.
How much taxes do you pay for a house?
The payable tax amount depends on the location in which the property is situated. The state government imposes the property tax and may vary from one property to another. The different civic corporations also have different methods to carry out tax calculations. However, a basic formula used for the calculation is:
The first factor that is considered while imposing the tax is the type of occupancies such as self-occupancy or rent. The area in which the property is situated is also a basic factor that needs to be determined along with the type of property (residential or commercial, land), amenities that are available on the property such as the parking facilities, facilities such as the gym, swimming pool, etc.
The year in which the construction of the building has taken place also needs consideration. Floor spacing and carpet square areas of the property are also factors that affect the tax that is payable to your house.
The tax payable on your property can be calculated online by visiting your respective municipality’s website.
Different methods of property tax calculation
There are mainly three ways of calculating property tax:
Capital Value System (CVS):
The tax is levied as a percentage of the market value of the property. This market value is determined by the government and is based on the locality of the property. The market value is revised and published yearly.
Annual Rental Value System or Ratable Value System (RVS):
Under this system, the tax is calculated on the yearly rental value of a property. This is not necessarily the actual rent amount being collected; rather it is the rental value decided by the municipal authority.
Unit Area Value System (UAS):
In this system, the tax is levied on the per unit price of the built up area of the property.
Do you pay property taxes if your house is paid off?
It would be a milestone achievement if you have paid off your mortgage. If your mortgage is paid off, it does not mean that you are freed from the tax liabilities. Every state in India imposes a certain property tax on the owner of the property at a certain rate. When your mortgage is paid off, your principal and your interest get over. This does not mean your tax liabilities on your property have also been paid off. The only difference in your tax payment is that now you will be making your tax payments directly to the local government and not to your mortgage.
The consequences of not making the tax payment are that your property can be taken off from you even though you have settled the mortgage amount completely. The government then shall sell your property in foreclosure to recoup the tax debt incurred by you. The best way to carry out the property tax is by planning things. You are required to calculate the amount that would be required by you to make your tax payments. You can make the tax payment a lot simpler if you divide the annual tax amount into monthly installments and set aside money every month.
Is it better to include property tax with a mortgage?
A person can make payment of tax on their property either through the mortgage they have taken or directly to the government authorities. The answer to the question if it is better to include property tax with a mortgage depends solely on a person’s preferences. However, a few benefits and limitations of making payment through the mortgagor is mentioned below.
- Since payments of the mortgages take place every month, you will be making payments for your tax every month. This will help you finance your tax payment without any difficulties.
- It is a much simpler process as the banks take care of the various factors such as filing, timely payment, etc. of your tax on the property. This can also help in reducing the stress of the homebuyer as the complicity of the multiple payments is avoided.
- As already stated, the banks ensure that the payment of your tax dues is made regularly. As a result of this, you can avoid any late payment charges that could be incurred.
- The lenders also calculate an estimate of your property tax and add the same to the amount withdrawn from your account as a mortgage payment and thus helps to make the budgeting process a lot simpler.
- It is highly recommended to first-time homebuyers as it eases the process of purchasing a home.
- The banks may sometimes charge you a higher amount to meet any additional expenses that may be incurred. Thus you may end up paying more amount to the lender than necessary even though sometimes the additional amount will be discounted in future payments.
- There are various benefits under the Income-tax Act such as Section 24, 80, etc. which provides you benefits based on the amount that you pay as your interest on the mortgage. These benefits can be utilized to the best by making direct payments to the local authorities.
Penalty/ future issues in case of property tax evasion or dues
Income tax evasion is a criminal offense in India. Under chapter XXII of the income tax Act, 1961, tax evasion can attract hefty penalties along with evaded tax or in some cases may even land you in jail. Following are some of the instances, where noncompliance of Income Tax rules can result in hefty penalty or even a jail of a maximum term of 7 years :
- Not filing Income Tax Return
- Not providing PAN or quoting the wrong PAN
- Not checking Form 26AS before income tax return filing
- Not paying tax as per self -assessment
- Concealing Income to evade tax
- Not complying with the income tax notice
Summing up, it is to be stated that the property tax is an indispensable part of homebuyers’ expenses. The tax needs to be paid irrespective of the fact whether the property is fully paid up or not as on the failure of the person to make the tax payment, his property may be ceased and sold by the government as foreclosed property to compensate the person’s tax liabilities. There is also no exemption to make the tax based on your age.
However, there are certain general exemptions that the IT Act provides based on being a non-senior citizen, senior citizen, and super senior citizen that could be availed to reduce your tax burden. Your tax payment may be done through your mortgage or directly. However, after the repayment of the loan, you will have to make tax payments directly to the government authorities.