New Tax Assessment Formula Unit Area Method

Property Tax is the major source of revenue for each municipality in the country. It comprises a levy on every structure which is for residential purpose or commercial / industrial use, and also includes institutions, industrial units and commercial units.

In Delhi annual yield from Property Tax has till now been approximately Rs.700-800 crores. Everybody is aware that a large number of houses located in unauthorised colonies have not been paying any Property Tax because it has never been levied on them. The assessment formula which till now has been operative is also faulty, and in addition, there have been quite a lot of leakages and inadequate assessment of the tax. The basis of the assessment of Property Tax has till now been the "Annual Rental Value" and the "Carpet Area". "Annual Rental Value" is defined in the Rent Act as the rent calculated on the basis of cost of construction and the "Price of land on the date of commencement of construction". This provision, viz. "the price of land on die date of commencement of construction", has been the main cause of anomalies and absurdities which have crept into the assessment. In relation to the definition of the "Annual Rental Value" one can take two adjacent houses as an instance, one house constructed 30 years ago and the adjacent house constructed in recent months, both of same size construction and same size of plot of land. Cost of construction of the house built 30 years ago would have been, say, Rs. 30,000. Cost of construction of the adjacent house will be atleast ten times of this amount, or even more. Both houses receive the same quantum of municipal services; road, drainage, sewerage etc. The concept of "Carpet Area" also involved all sorts of manipulations; staircases, bathrooms and areas outside. the rooms could be very easily ignored in the calculation of "Carpet Area".

It was on this account that the "Unit Area Method" which had been adopted by certain other municipalities in the country, was advocated. Credit in relation to this matter, to have propagated the Unit Area Method, can be claimed by COMMON CAUSE, because we had strongly advocated the changeover to this method, for improving the annual yield and for avoidance of leakages and manipulations.

Delhi Government and the Municipal Corporation took the initiative of setting up a group of experts who constituted the 'Valuation Committee'. They have done a splendid job in suggesting changes. Firstly, they exerted to determine how to put different houses in the various residential colonies of Delhi into separate categories. These residential colonies had established their own identities and capacity, and consequently it was found advisable to put them into different categories. The residential colonies located at different places in the city were classified into categories A to H. It was found that actually the total number of colonies were as many as 1985. A large number of these colonies have never been taxed. By putting them in the different defined categories they will no longer be able to escape assessment.

For calculation of Property Tax payable on a residential premises, the property owner can now make his own calculation. He will have to first determine the "Covered Area" of the property. In case it is more than 100 sq. meters, he would have to seek the help of one of the architects empanel led by Municipal Corporation of Delhi for this purpose. The next step is to check the category under which the colony falls. These figures and facts would help in the calculation of "Unit Value", which is different for each category of the colonies. The unit value ranges from Rs. 630/- per sq. meter for' A ' category, Rs. 500/- for' B ' Rs. 200 for' G ' and Rs. 100/- for' H '. For arriving at the, Annual Value' of the property the owner would then have to multiply the covered area with the "unit Value" and the age factor. The age factor itself has been defined as 0.5 for buildings constructed before 1960, 0.6 for properties constructed between 1960 and 1969, 0.7 for those constructed between 1970 to 1979,0.8 for those constructed during 1980-1989, 0.9 for those constructed during 1990 - 1999 and one for those constructed after 2000.

For all properties falling in A, B, C, D and E categories the house tax would be 10 per cent of the annual value and for those in F, G and H categories it would be 6 per cent of the annual value.

The Municipal Corporation has decided to give a rebate of 15 per cent on the house tax if the residents pay their tax by June 30th and that also in one instalment Self-occupied residential properties for less than 100 sq. meters and owned by women,senior citizens and physically handicapped persons are proposed to be given further rebate of 30 per cent on the Property Tax.

For properties which are not self-occupied residential, the "Annual Value" has to be arrived at by multiplying the covered area unit value and the age factor by 'Use Factor' . The Valuation Committee of the Corporation has recommended the' Use Factor 'of 10 for Three Star and above Hotels, Hoardings and Towers, a factor of four for business restaurants and hotels upto Two Stars; a factor of three for industries, entertainment, recreation and clubs, a factor of two for public utilities and a factor of one for properties used for public purposes. For rented commercial properties the factor is proposed to be 8. For non-residential properties, the Property tax would be 15 per cent of their annual value. For Three Star and above hotels, hoardings and towers the Property Tax is proposed to be 20 per cent of their annual value.

These are broadly the recommendations made by the 'Valuation Committee' of the Municipal Corporation and it is contemplated that this Unit Area Method would come into effect from 1 st April, 2004. However, even at present certain suggestions and counter suggestions are emanating from the Councillors of MCD and finalisation of the suggestions may yet takes some more time. As an instance, a 30 per cent rebate suggested for senior citizens, widows and physically disabled persons on their self- occupied residential property of area upto 100 sq. meters is proposed to be reduced from 30 per cent to 15 percent. The 15 per cent rebate proposed to be given on timely tax payment in the first three months for the financial year, is proposed to be reduced to 10 per cent. Obviously there has been lack of coordination between Valuation Committee, House-tax Department and elected Councillors of the Corporation. One can only hope that all these matters will soon be finalised and settled, for enabling the Unit Area
Method to be brought into operation from 1 st April, 2004. 

The Municipal Corporation Commissioner has published a short booklet which is now available to people at a small cost and which contains the guidelines for calculation of the Property Tax due on the property and where the payment has to be made by the due date.