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The most horrendous blow from BMC on the face of flat owners in Mumbai has forced the Property Owners' Association to seek justice through the Mumbai High Court against the nuisance of change in policy of imposing property tax in Mumbai and its suburbs with retrospective effect.

The new capital value-based property tax system that came into effect from April 2010 will distress more than two lakh self-occupied, leased and vacant properties in the city. The civic authority has extended the deadline for paying the taxes to June 30, 2013.

It is transpired that the main object of the capital value system is to remove the tax disparity between old and new properties. The flat owners will be able to calculate property tax on their own and check if the BMC has sent them the correct bill and if not, they may have to spend better time of their life in offices of BMC for redressal of their complaints.

The new system is based on market values of the year 2010 fixed by Govt. of Maharashtra only and it is claimed that the value will not change for the next five years.

Capital value will be worked out as per rates given in the Stamp Duty Ready Reckoner and Market Value of Properties in Mumbai 2010 for all the properties constructed as on 31-12-2010. Buildings constructed during 2011 and 2012 will be valued as per Ready Reckoner of that year.

The property tax will be the same whether it is owner occupied or given on leave and license or rent. Presently the rented properties which attract higher taxes will be re-worked out as if it is owner occupied as on 31-03-2010 and will be taxed accordingly. Excess tax charged will be refunded.

According to the revised system, the property tax on residences will be calculated ON BUILT UP AREA at 0.41% of its capital value. For offices, the tax will be at 1.95% of the capital value and for banks, it's at 3.91%. The new tax will be calculated on the basis of the current market value or capital value of the property based on factors, like age, price, location, and type of property. Properties have been classified in four groups i.e. open land, residential, shop including commercial and industrial.

One can imagine the ‘legendary’ efficacy of BMC while working out these factors for each property and assess the tax. However, the BMC foolishly claims total rationalization of the system and that the new system is more transparent leaving no discretionary power to the assessing officer to favour any property owner. 

Members of most housing societies are burdened since the civic authority has already raised bills from January, 2013 demanding tax arrears for the past three years. Presently the corporation has sent the provisional bills as per rateable value system only, whereby after fixation of capital value and issue of the final bills, if the amount paid is more than the final bill, the same will be refunded with interest at 6.25% per annum and if the amount paid is less than the final bill, the same will be recovered from the taxpayer.

The new system will also have its impact on property redevelopment activities. The civic authorities have yet to realize that the rate of tax and capital value of the new and redeveloped buildings also needs to restrict in line with old buildings.

Apart from the property tax recovered by the corporation, there are state education cess, employment guarantee cess, repair cess and tax on building having area more than 125 sq meters, which will be charged separately as per rateable value system only. This is because these taxes are not switched over to capital value system by amending relevant acts.

The Maharashtra Ownership Flats Act (MOFA) states that developers should sell properties on a carpet-area basis. Contrary to this, the greedy BMC has charged the tax under new system on the built-up area which includes stilt, porches and AC plant room also.

Tax will be charged on the built up area of each unit plus common area of the building enjoyed by all the members, on pro rata basis. Actual built up area will be measured on the site. In case of old properties carpet area + 20% will be accepted as built up area. Residential units up to 500 sq ft carpet area will pay the same old tax.

Residential units more than 500 sq ft carpet area will pay two times of the old tax plus tax on common area on pro rata basis or tax as worked out on capital value system, whichever is less. The non-residential units will pay three times of their existing tax plus tax on common area or tax as worked out on capital value system, whichever is less. The tax bill has to be paid on time, failing which it will attract penalty at the rate of 2% per month on the due amount.

The market values given in the Ready Reckoner will hold good for all the properties in Mumbai existing as on 31-12-2010. However old properties will qualify some depreciation. Redeveloped new buildings will be treated as new structure and will be valued accordingly.

Once the property tax is fixed, it will not be revised for five years. After five years increase will be ‘generously’ restricted to 40% only.

A flat of 3000 sq ft at Cuffe Parade which is 40 years old paying property tax Rs.750 per month only will now pay Rs. 1500 only, where as a new building next to it will pay property tax more than Rs.30000/- per month with blessings of BMC to be an architect of gigantic disparity in the present system.

Each owner of the unit will receive individual bill which he will directly pay to the corporation like electric, telephone and gas bills. However this service initially will be available only to those societies which are not in arrears of property tax.

The Capital value is reckoned as Base value x Built up area x User category x Nature and type of building x Age factor x Floor factor. Property tax = Capital value x Rate of tax.

Before the new system of charging tax on capital value introduced, the MCGM had adopted rateable value system to charge property tax to property owners in the limits of MCGM

Applicable Tax Rate was based on the use of property i.e. residential or non residential and was applicable on the net rateable value arrived for particular property.

Method of Assessment & calculating Rateable Value of the Buildings and Lands:

Rateable Value of any Building or Land assessable to Property Taxes was determined as per the provisions of Section 154 of MMC Act. Rateable value of any building or land was determined by allowing 10% statutory deduction in lieu of all allowances for repairs or any other account whatever from the annual rent of such building or land for which such building or land was reasonably expected to let from year to year.

Net Rateable Value = (Rent per month X 12) Less 10% Statutory Deductions.

As observed by the MCHM, at present, the concept of construction of the Building for letting to the tenants not found in general. Normally all the properties are constructed for the purpose of occupation of individual owner.

In the past due to Rent Control Act, the standard rent were fixed for the protected tenant and hence, the rateable value arrived based on the above formula was frozen. However, to meet increased expenditure in budget due to year on year rising costs and various expansions, MCGM was left with no option but to increase tax rate applicable on the net rateable value. Due to this problem, the tax rate increased to as high as approximately 86.5% for residential building and 112.5% for non residential building.

This created another issue where in property actually leased to a tenant with lease agreement in place. Hence rateable value was arrived based on the actual passing on rent less 10% standard deduction and tax to be 112.5% of 90% annual rent i.e. Net Rateable Value. In this scenario tax was even more then the rent income.

Therefore, the department demarked the pockets of locality in every Ward and provided ‘Residential Letting Rates for each Pocket’ to arrive at the Annual Rent at which the building was reasonably expected to be let from year to year and considering ‘Residential Letting Rate’, the Annual Rent and Rateable Value of the property was fixed.

The housing society on its own should first get each and every flat meticulously measured from wall-to-wall to ascertain the actual carpet area. For once, the society will be able to ascertain the exact square feet area of each flat, as in most cases, the areas mentioned are the old/initial original areas taken from the original MCGM building approvals.

It is noticed, in many cases members have subsequently not obtained mandatory permission either from the society and/or MCGM approvals for extending or covering balconies/galleries or for breaking down internal walls, all these resulting into increasing the basic sanctioned floor area. Some have been putting residential areas to commercial use. Most of these aberrations that are not even within the knowledge and consent of the society can now be rectified as a result of this exercise.