Difference Between Property Tax and Wealth Tax?

Introduction

Navigating India’s long list of various taxes can be confusing. Especially when distinguishing between property tax and wealth tax. Although the terms may seem interchangeable, they refer to different aspects of financial portfolios. Both taxes apply to immovables and movables that contribute to government revenue. This article aims to highlight the difference between the property tax and wealth tax.

Table of Contents

• What is Property Tax?
• What is a Wealth Tax in India?
• How is Wealth Tax Calculated in India?
• Wealth Tax vs Property Tax: Differences

What is Property Tax?

Paying property tax is not only a legal obligation but also contributes to the development and maintenance of essential municipal services and infrastructure. By paying their fair share of property taxes, property owners help provide services that benefit the entire community. Such as waste management, street lighting, and public health programs.

Additionally, it is important to stay current on property tax payments to avoid penalties and legal consequences. Failure to pay property taxes can result in penalties, interest charges, and even seizure and auction of the property to cover unpaid taxes. Therefore, property owners need to understand their tax obligations. Ensuring timely payment of their property taxes should be a priority.

What is a Wealth Tax in India?

Wealth tax is governed by the Wealth Tax Act of 1957. It is a direct tax levied on a person’s assets. Originally designed to promote equity among taxpayers of different wealth. With the implementation of the Union Budget in 2015, India stopped imposing a wealth tax with effect from the financial year 2015–16.

Instead, it now manifests itself as a surcharge on people with higher incomes. According to the Union Budget 2019, an annual budget of Rs. The surcharge on income tax is 10% for those earning more than 50 lakhs, and it. is raised to 15% on total income above 1 crore.

How is Property Tax Calculated in India?

Property tax in India is calculated based on the Annual Rental Value (ARV) of the property. Different methods like the Capital Value System (CVS), Annual Rental Value System (RVS), and Unit Area Value System (UAS) are used for calculation depending on the location.

The ARV is determined by the local municipal authorities and usually depends on factors such as the size, location, and amenities of the property. The method of calculation may vary from one municipality to another. But generally, it involves the following steps.

Determination of Annual Rental Value (ARV) Municipal authorities estimate the potential rental income a property could generate if it were rented out. This evaluation takes into account factors such as the property’s size, location, and amenities. Once the property tax rate application ARV is determined, it is multiplied by the property tax rate determined by the local municipality.

The tax rate may vary depending on factors such as the type of property (residential, commercial, industrial) and its use. In some cases, there may be additional charges or levies imposed by the municipality. Such as education cess or sanitation tax, which are added to the calculated property tax amount.

Methods of payment:

Property tax is usually paid annually, semi-annually, or quarterly depending on the rules and regulations of the local municipality. Failure to pay property tax on time can result in fines or penalties.

Rebates or Exemptions:

Municipalities may offer property tax rebates or exemptions to certain categories of property owners, such as older citizens or those with disabilities. Additionally, properties used for charitable purposes or owned by government agencies may be exempt from property tax.

How is Wealth Tax Calculated in India?

Under the Wealth Tax Act, wealth tax is calculated on the net wealth of an individual or Hindu Undivided Families (HUFs) exceeding a specified threshold. Net wealth is calculated by subtracting the sum of specified exemptions and liabilities from the total value of assets owned by the taxpayer.

• Identification of Assets:

Taxpayers must identify and list all their assets, including real estate (such as land and buildings), jewellery, bullion, motor cars, aircraft, boats, urban land, and cash beyond certain limits.

• Valuation of Assets:

The value of each asset is determined based on the prescribed valuation rules. For example, the value of immovable property is determined based on government guidelines for property valuation. While the value of jewelry, bullion, and other assets is based on their market value.

• Exemptions:

Certain assets such as productive assets such as stocks, bonds, and shares in companies. As well as residential properties that are self-occupied or rented out for more than 300 days in a year, are exempt from wealth tax.

• Calculation of Net Worth:

After identifying all assets and applying the relevant valuation rules. The taxpayer calculates their net worth by deducting applicable exemptions and liabilities (such as loans or mortgages) from the total value of the assets. Wealth tax is levied at a flat rate of 1% on net wealth beyond a specified threshold. Thresholds and rates vary depending on the category of taxpayer (individual, HUF or company).

Wealth Tax vs Property Tax: Differences

There are differences between property tax and wealth tax. Some of them are given below.

Conclusion

Property tax in India is assessed by municipal bodies based on the assessed value of the property. Different methods like the Capital Value System (CVS), Annual Rental Value System (RVS), and Unit Area Value System (UAS) are used for calculation depending on the location. For more information, visit openplot.

Also read: Property Tax Guide for 2024: Online Payment, Calculation, and Significance