If you have been looking into the market of home loan, you might have come across the term ‘property tax’ more than once. Though property tax varies from state to state and depends on the valuation of your home, you must remember that your home loan depends on the property tax. Each home loan has the provision that in case you fail to pay off the property tax in an “event of default”, the lender could even foreclose on your property even when all your mortgage payments have been done in a punctual manner.
Why should you concern yourself with property tax?
In India, property is a source of income for many and hence, it was only but natural that tax would be levied on any property you purchase, be it a humble shop or godown, flat or a proper residential building, provided you are using it to earn money in any form. The amount of property tax that you need to pay would depend on the value of the property that is being taxed in the first place.
Why is the property tax being charged at all?
The fact that the local municipal authority is the force behind the property tax being levied must tell you a lot about how the money you pay goes to towards the maintenance of the basic civic services in your city. The property tax in India is only charged on the real estate building and not on the plots of land, which don’t have any establishment in its vicinity.
How is the property tax calculated? What is Annual Value?
The property tax you need to pay is decided on the basis of the annual value of the let out or self occupied property. For the self occupied properties, the annual value is taken to be zero. However, if that property is rented, the property tax is calculated accordingly.
What are the tax benefits of your home loan?
Under Section 24, you are empowered to claim up to Rs 200000 or the actual amount of repaid interest. However, you can only make the claim when you are in possession of the house.
Under Section 80C, you can claim the principal up to the maximum limit of Rs 150000 across all the investments made under the section 80C. However, you might be needed to show the lender’s statement showing the not only the interest and principal components but also the repayment for the year.
How can a new homeowner avoid property tax traps?
Every homeowner should go to the pains of confirming the tax rate before signing on the dotted line to save himself from the reassessment and hikes of rate of interest. The estimate of a real estate broker of the approximate tax bill might prove to be helpful but even then you might be required to pay more tax in the subsequent years. You can potentially open up an escrow account in order to set apart the funds that would be drained to provide for the taxes.