If you’re investing in property, especially in exciting markets like Kolkata, it is important to have some idea of the financial condition. The condition’s most significant component is property tax, a continuous cost that has the potential to affect the return on your investment. If you are planning for Kolkata flats, city residential projects, or long-term investment, it will be helpful to understand how property tax functions to make the right decisions.
Everything you need to know about property taxes before investing in Kolkata real estate is covered in this article.
Knowing Property Tax in Kolkata
Property tax in Kolkata is administered by the Kolkata Municipal Corporation (KMC). Property taxation is one of the major sources of revenue for urban government and urban growth. The method of calculation used in the instance of property tax is the Unit Area Assessment (UAA) system, which has been activated since 2017. The UAA system strives to make it easy and equitable to tax property, but it can be overly complicated for new people and new investors.
Here, residential projects are taxed according to their value during the period of one year based on their location, area, and utility. KMC has different categories in terms of property size and facilities, for which the rate of property tax is different.
The Unit Area Assessment System
The UAA system applies the Unit Area Value (UAV) for property tax assessment. This is calculated on a per-square-foot rental value of property, varying in the localities of Kolkata in the city. The system classifies the city into seven categories (A to G), from well-developed (Category A) to poorly developed and outer localities (Category G).
Categories A to D: These consist of the prime and developed areas of Kolkata, i.e., high-rise residential and central business districts.
Categories E to G: These consist of less developed or peripheral categories.
The Unit Area Value (UAV) is then used on the built-up area of the property (in square feet), and the tax rate which is payable over this value is charged.
How Property Tax is Calculated in Kolkata
The tax in Kolkata is calculated based on the annual value (AV), which is the estimated potential rent the property can command. When determining the property tax, the most crucial elements to take into account are the property’s size, location, and use. This is how:
Identify the Category of Property: The first thing to do is to identify the category of your property. The KMC has divided the city into different zones, and each zone has a specific Unit Area Value (UAV) per square foot. This depends on where your property is.
Compute the Annual Value: The Annual Value is arrived at by multiplying 12 times the estimated monthly rent (that is, the rental income on an annual basis). A deduction of 10% is, however, permitted to cover repair and maintenance expenses.
Use the Tax Rate: The tax rate also differs with the nature of property, being between 6% and 20%. An example is where your property comes under Category A, it shall be taxed higher rate than if your property is classified under Category G.
Discount and Rebate: To encourage early payment, the KMC offers a 6% property tax discount for early payments. This can reduce your tax payment to a large extent if you are careful about making the payments.
Recent Changes in Property Tax Rates
It should be noted that property taxes have been periodically revised. In 2023, the KMC has imposed a 10-15% hike in property tax across different zones, which has affected many of the city’s residential projects. While this is in light of the rising cost of urbanisation as well as growth in infrastructure, it also signifies that investors would need to be ready for periodic increases in their tax outlay.
For instance, in Category A areas, the rate of tax per square foot rose to ₹82 from ₹74. This indicated a rise in the cost of real estate in high-end locations, as well as development expenses and services there.
Major Exemptions and Concessions
Even though property tax in Kolkata may be costly, there are certain exemptions and concessions which are to be considered by the investors:
Government and Public Sector Properties: Government or public sector undertaking properties may be exempted from the imposition of property tax depending upon their purpose and classification under municipal legislation.
Heritage Properties: Heritage buildings or properties that belong to the cultural heritage of the city may be exempted or waived from paying property tax. Such properties are generally covered under the laws of protection of the state and may be provided with concessions so that their structural integrity is maintained.
Economically Weaker Sections: Kolkata Municipal Corporation provides concessions to slum pockets’ properties or to properties falling under government schemes for economically weaker sections. The properties fall in the slab ‘G’ and incur low tax rates.
Property Tax Consequences for Kolkata Investors
For investors interested in flats in Kolkata or other residential projects, property tax is worth considering for the following reasons:
Higher Operating Expenditure: Property tax is an ongoing expense, and hence, it needs to be included in your ownership expenses. Taxation has the potential to affect your profitability and cash flows, particularly for those investors who are dependent on rental yields.
Impact on Rental Yields: High property tax rates can erode the returns on investment, particularly if you’re renting out flats in Kolkata. For example, the higher the tax, the less attractive the property may become from a rental yield perspective.
Compliance with Law and Evading Penalties: Property tax delay payments can lead to penalties and legal issues, thereby adding to your expenses. As such, be sure to remain up to date with your tax payments and promptly pay them.
Strategic Investment Choices: Having knowledge of where the lowest property taxes are can assist you with strategic investment choices. If you want to achieve maximum returns on investment, you can choose areas from lower tax bands (Categories E to G), although they might be distant from the city centre.
Final Thoughts
At Oswal Group, we feel that property tax is an essential part of every real estate investor’s due diligence, particularly in a market such as Kolkata. Property tax might appear to be a hassle at first glance, yet it’s not something to be neglected. Rather, we invite our clients and investors to make it a part of their overall investment strategy so that they make financially smart, well-informed decisions.
When you plan to invest in property in Kolkata with Oswal Group, we assist you in weighing all of the associated expenses. This ranges from property tax dues, maintenance charges, electricity bills, and even possible rental yields. By looking at your investment holistically, you set yourself up for long-term success and financial security.
With our insightful knowledge of the Kolkata real estate market, Oswal Group is committed to being your trusted guide, ensuring your property investment meets your objectives and provides long-term value.