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Mumbai’s posh areas to pay more tax

The change in the method of collecting property tax will affect new buildings more, reports Gigil Varghese.

business Updated: Jun 09, 2007 02:14 IST
Gigil Varghese

Higher the value of your property, higher the property tax you have to pay. Property tax will now be calculated on the current market value.

The tax is calculated on the basis of the rent a particular property is likely to earn. Mumbai still follows the old rateable value-based system which was constituted in 1888 and which all other cities had followed as well.

The Brihanmumbai Municipal Corporation (BMC) earlier levied property taxes on a huge area irrespective of property value in that area. This meant residents of Pali Hill and Bharat Nagar slums, both areas in Bandra, paid nearly equal tax.

“Areas where property tax is likely to increase are the areas that fetch more rents like Juhu, South Mumbai and areas closer to the railway stations which have better infrastructure,” said PB Khandare, former assessor and collector.

The change in the basis of collecting property tax will most affect new buildings in the island city of Mumbai, which unlike, the old buildings are not protected under the archaic Rent Act.

Advocate Vinod Sampat said that the implications of the change would be felt over a period of time. “Suburban areas like Borivali, Kandivali, Bhandup and Mulund, where a lot of new construction is going on, will see a marginal deduction in property taxes. Now since the tax will be calculated on the market value, they will have to shell out less tax than areas like Walkeshwar or Worli.”

“The impact will be gradual. Initially, the rise will be around two-three times more but eventually the tax will be calculated at 1 per cent of the value of the property,” said Sampat.

The recent BMC budget estimates a surplus of Rs 92 crore in the next fiscal year, to be collected mostly through property tax.

From the earlier 128 pockets, the city will now be divided into 639 pockets, which means the property taxes will depend on the profile of the area.

Manu Kumar Srivastava, additional municipal commissioner, BMC said, “This is a more rationalised method of collecting tax. We will calculate the taxes on the rent that a particular property is likely to earn. You will have to shell out more if you earn more rent.”

A senior BMC official explained, “In the earlier method, BMC officials had the discretionary power which allowed them to raise and slash the rates according to the area. This led to corruption as property owners could bribe officials and reduce the tax.”

Reforms in property tax have been a challenge of sorts for both the state government and the civic body. Cities like New Delhi, Bangalore, Kolkata, Patna, Hyderabad and Ahmedabad saw property tax reforms and most of them follow the unit-based system, where property tax is calculated on the basis of the area where the property is located.

Last year, the state gave the BMC powers to decide the base on which rents will be calculated. This is when the BMC decided to use the rates in the Ready Reckoner.