WELCOME

18-10-2014

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New System of Property Tax in

Municipalities in Telangana State

Presentation by :M. Prasada Rao, IAS (Retd.)

Former Commissioner & Director of Municipal Administration

Main sources of income to ULBs

1. Taxes

2. Non-taxes

3. Assigned revenues

i. Entertainment tax

ii. Surcharge on stamp duty

iii. Profession tax

4. Non-plan grants

5. Plan grants (16 items)

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Property Tax

1. Single largest source of revenue to the ULBs.

2. Constitutes about 20% of total municipal revenues of ULBs during 2013-14

3. Constitutes about 43% of internal revenues of ULBs during 2013-14.

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System of Assessment Prior to 1989

Basis for fixation of Annual Rental Value

1. Fair Rent fixed or fixable in respect of buildings covered by Rent Control Legislation

2. Rent received for the building

3. Rent fixed on hypothetical basis in respect of buildings where Rent is not fixed.

4. Rent fixed on hypothetical basis in respect of owner occupied buildings

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Problems faced in fixation of Annual Rental Value

1. Considerable discretion to the assisting authorities.

2. Large disparities in the amount of tax for similar buildings used for similar purpose.

3. Determination of Annual Rental Value varies with Assessing authorities.

4. Complaints of Arbitrariness in the Assessment of Property tax.

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Amendments to Municipal Laws in 1989

1. Amendment to AP Municipalities Act, 1965

2. Amendment to Hyderabad Municipal Corporations Act, 1955

3. AP Municipalities (Assessment of taxes) Rules, 1990.

4. Hyderabad Municipal Corporations (Assessment of property taxes) Rules, 1990.

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Property Tax - Components

1. a tax for general purpose;

2. a water tax;

3. a drainage tax;

4. a lighting tax; and

5. a scavenging tax

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Rates of Property Tax

Property tax and library cess shall not exceed

Category Not to exceed

(a) Residential buildings : 25 percentum of ARV

(b) Non-Residential Buildings : 33 percentum

of ARV

Library cess shall be collected at the rate of 8 paise for every rupee in the property tax levied.

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New Property Tax System

Basis For Levy of Property Tax : Annual Rental Value

Factors for fixation of Annual Rental Value

1. Location of the building

2. Type of construction

3. Plinth area

4.  Nature of use

5.  Age of the Building

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Objectives of New System of Property Tax

1.To evolve a scientific method in the levy of Property

Tax in the Municipalities.

2. To fix the Assessments in a uniform manner in

respect of similar Buildings situated in one locality

and used for similar purpose.

3.To reduce the discretion and to avoid arbitrariness

in the Assessment of Property Tax.

4. To simplify the Procedure of assessment

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Contd..

5. To make tax administration to be of more efficient and effective in the levy of property tax. 

6. To de-Link the provisions of Rent control Act from the method of assessment of Property Tax.

7. To provide relief to the buildings constructed under weaker section Housing Scheme and to owner occupied residential buildings.

8. To improve the resources of the Municipalities by Restructuring the method of assessment of Property Tax.

Allowances for Repairs

Age of the building Deduction allowedfrom ARV attributable

to the building

25 years and below 10% of ARV

Above 25 years and upto 40 years

20% of ARV

Above 40 years 30% of ARV

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Rebate to owner occupied residential buildings

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40% of ARV attributable to the building inclusive of deduction permissible for age of the building

RCC Posh Buildings 1. Teak wood for doors, windows and

cupboards.

2. Marble flooring.

3. Superior sanitary and electrical fittings

4. Attached bathrooms

5. Difference in MRV per sq.mt of plinth area between RCC Posh building and RCC ordinary building shall be limited to 20% of MRV per sq.mt of plinth area

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Non-Multistoried Buildings without lift facility

MRV per sq.mt of plinth area to be fixed separately for the following categories.

1.Cellar

2.Ground and First Floor

3.Second and Third Floor

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Multistoried Buildingsi. Building with more than ground and three

floors.

ii. Rent to be fixed separately for the following categories.

a) Cellar

b) Ground and First Floor

c) Other Floors

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Plan of Action for Levy of Property Tax

1. Division of Municipality into zones.

2. Classification of buildings based on type of construction.

3. Further classification of buildings based on nature of usage.

4. Survey of prevailing rental values of 20% of rented buildings.

5. Preparation of draft notification in Form – A

6. Consultation with State Property Tax Board.18

Contd.. 7. Publication of the draft notification in

Form – A

8. Consultation with elected representatives

9. Consideration of the objections and suggestions received from the public

10. Publication of the final notification in Form-’A’.

11. Preparation of property tax assessment list of buildings in Form-’B’.

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Contd.. 12. Preparation of special notices

13. Issuance of public notice regarding levy of property tax for the first time.

14. Service of special notices.

15. Receipt of Revision Petitions.

16. Disposal of Revision Petitions.

17. Disposal of appeals.

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Division of Municipality into Zones

First Step:

1. Teams to be constituted for division of Municipalities into zones with the following officers:

a) Revenue Officer / UD Revenue Inspector

b) Town Planning Officer

c) Municipal Engineer

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Contd..ii. Factors for division of municipality into

zones

1. Provision of civic amenities

2. Proximity to markets and shopping centers.

3. Proximity to educational Institutions and medical institutions.

4. Proximity to banks, postal services and public offices.

5. Proximity to factories and industries.

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Contd..

iii. As far as possible, the number of zones should be kept at

the minimum.

iv. Rents fetched on main road varies from rents fetched on

internal roads and lanes and by-lanes in a zone.

v. Sub-categorization of zones and fixation of separate rents

has to be provided for the following categories :

a) Buildings abutting main roads.

b) Buildings abutting internal roads.

c) Buildings abutting lanes and by-lanes.23

Classification of the buildings based on Type of Construction

Second Step:

Classification of buildings based on Type of constriction

1. RCC Posh buildings

2. RCC Ordinary buildings

3. Madras Terraced / Jack Arch / stone slabs / slate roofed buildings.

4. Mangalore tiled / Asbestos / GI roofed buildings.

5. Country tiled buildings.

6. Thatched roof / Huts.

7. Any other building not covered above24

Classification of buildings based on nature of usage

Third step:

After classification of buildings based on their type of construction, they shall be further classified based on nature of usage

1)Residential

2)Shops, Shopping complexes

3)Public use

i.Office complexes, public and private offices and banks

ii.Hospitals and Nursing Homes

iii.Educational Institutions

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Contd..4) Commercial purposes

i. Hotels, lodges, restaurants

ii. Godowns and other business establishments

5) Industrial purposes i.e., factories, mills, workshops and other industries.

6) Cinema Theatres or places of public entertainment

7) Any other usage not covered above

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Contd..Nature of Usage:

Following additional usages may be provided depending on local circumstances wherever necessary

Few Examples:

1) ATMs

2) Corporate Hospitals and Nursing Homes

3) Clinics, Dispensaries and Diagnostic centres

4) Star Hotels

5) Other Hotels27

Contd..

6) A.C. Marriage Halls / Function Halls

7) Non-A.C Marriage Halls

8) Petrol Bunks

9) Cellular towers

10) Hostels

11) Any other usage

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Survey of Data relating to prevailing rental values of 20% of rented buildings

Fourth Step

• Classification of buildings : 6 categories based on construction

• Further classification of buildings : 10 categories or more

based on nature of usage

• Maximum categories of buildings available in a zone : 60 or more

• Information to be gathered for 20% of all categories of rented buildings in a zone / sub-zone to the extent of their availability or situation.

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Contd..Method of conducting survey

Bill Collectors and Revenue Inspectors to be entrusted with survey work

1) Introduce themselves to the Tenants of Buildings.

2) Explain the purpose of visit.

3) Leaf let has to be handed over to the Tenant of the Building.

4) Gathering of information relating to plinth area and prevailing Rental values of 20% of rented buildings as per nature of construction and usage

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Contd..• Information relating to 20% of rented Buildings

to their extent of their availability in a zone or sub-zone

• Type of Construction-wise.

• Nature of Usage-Wise.

• All Zones and Sub-zones.

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Method of Filling up Survey Format

Col.No

Item Method of filling up the column

Zone No: As per draft notification in Form –’A’

Sub-Zone No:

Nature of construction As per situation in the field

Type of usage

1. Sl.No

2. Door No This column will be filled up as per Municipal Records

3. Existing Property Tax per annum

This column will be filled up as per Municipal Records

4. Existing Gross MRV This column will be filled up as per Municipal Records

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Contd..

5. Name of the Tenant This column has to be filled up after conducting proper enquiry

6. Cellar/ Ground Floor/ First Floor / Other Floors

After inspection of the building, this column has to be filled up

7. Plinth Area Area arrived at by multiplying the length of the building with breadth as measured outside the basement level.

Plinth area of a building includes plinth area of cellars, ground floor and all other floors above the ground floor of the building. Open balconies, open staircase, open portico without support are not to be included in plinth area.

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Contd..

 Plinth area has to be taken separately in the following cases:

1. if the construction is more than

one category.

2. if the building is put to different

uses.

3. in respect of multistoried

buildings plinth area has to be

taken up floor-wise

8. Prevailing MRV After inspection of the building, the column has to be filled up after enquiring from the tenant.

9. Remarks Any other relevant information may be noted here.

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Survey of Data relating to prevailing rental values of 20% of rented buildings

Test Checking:

Revenue officers, Commissioners to conduct test check of 10% of the buildings surveyed.

Fixation of average monthly rental value per Sq. m. of plinth area

: Based on information gathered in survey i.Total up the plinth areaii.Total up prevailing MRViii.Arrive at average MRV per sq.mt of plinth area by dividing total monthly rent with total plinth area

Preparation of Draft Notification in Form - ‘A’

Fifth step:

Information to be contained in the draft notification

1) Zone No.

2) Sub-Zone No.

3) Localities / Areas included in the zone

4) Name of the locality Door Nos.

From To

5) Monthly Rental Value proposed based on

construction-wise, usage –wise.

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Consultation with State Property Tax Board

Sixth Step:

1. Commissioner to consult State Property Tax

Board about monthly rent proposed per Sq. mt. of

plinth area for levy of property tax.

2. Board to study the draft notification

3. Make a comparative study of the monthly rental

values proposed by other Municipalities in the

district.

4. Offer its views in the matter.37

Publication of Draft Notification in Form - A

Seventh Step:

1. Due consideration to be given to the views of the Board

2. Finalize the draft notification in Form – A

3. Draft notification to contain:

a) Division of Municipality into Zones

b) Monthly rent proposed per Sq. mt. of plinth area

for various categories of buildings

c) Calling for objections or suggestions from the

public within 15 days

4. Draft notification to be published in the District Gazette and

local news paper38

Consultation with Elected Representatives

Eighth Step:

1. Commissioner to tabulate the objections/

suggestions received from public on the draft

notification.

2. To hold informal meeting with Chairperson and

Members including Ex-officio, Co-option Members

of the Council for suggestions on the draft

notification.

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Consideration of the objections and suggestions

Ninth Step:

1. Commissioner to consider the objections and suggestions

from the public

2. Commissioner to consider the suggestions received in the

informal meeting with Elected Representatives

3. Due consideration shall be given to the views of the Board.

4. Commissioner to record decision on the suggestions /

objections on the tabulated statement

5. Commissioner may revise the zones and monthly rent

provisionally fixed for various categories wherever

necessary.40

Publication of Final Notification in Form - ‘A’

Tenth step:

1. Commissioner shall prepare a final notification showing monthly rent fixed per Sq. Mt. of plinth area in Form – A

2. Final notification to contain

a) Division of Municipality into zones and sub-zones with localities and door nos. included

b) Monthly rent fixed for each category of the building based on construction and usage

3. Publication of the notification in District Gazette and local news paper.

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Statement showing the maximum monthly rental value fixed per square meter of plinth area in

Municipalities in the year 1992-93 and 2002-03:

Residential Purpose Rs. 8-00 Rs 18-00

Shops Rs. 30-00 Rs 50-00

Public Usage

i. Offices & Banks Rs. 18-00 Rs. 55-00

ii. Hospitals & Nursing Homes Rs. 18-00 Rs. 26-00

iii. Educational Institutions Rs. 12-00 Rs. 24-00

Commercial Usages

i. Hotels, Lodges Rs. 14-00 Rs. 38-00

ii. Godowns Rs. 9-80 Rs. 38-00

Industrial Usage Rs. 8-00 Rs. 24-00

Cinema Theatres Rs. 7-50 Rs. 30-00

Other Usage Rs. 4-50 Rs. 20-00

Comparative statement showing MRV fixed per sq.mt of plinth area from 01.04.2002

Sl.No.

Nature of Usage

Maximum MRV fixed per sq.m. of plinth area

Municipalities Corporations

1 2 3 4

Rs. Rs.

1 Residential 18.00 16.20

2 Shops 50.00 45.00

3 Offices and Banks 55.00 40.00

4 Hospitals 26.00 22.00

5 Educational Institutions 24.00 12.00

6 Hotels and Lodges 38.00 30.00

7 Godowns 38.00 30.00

8 Industries 24.00 20.00

9 Cinema Theaters 30.00 25.00

10 Other uses 20.00 19.0043

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Property Tax Assessment List of Buildings in Form – ‘B’

Eleventh step:

i. Teams to be constituted for preparation of Property Tax Assessment List of Buildings in Form – ‘B’ with the following officers

1) Revenue Inspectors

2) Assistant Engineers

3) Town Planning Supervisors

4) Town Planning Building Overseas

5) Senior Assistants

6) Any other suitable staff

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Contd..ii. Basis for Assessment of Property tax on

buildings.

iii. Proper filling up of various columns is very important.

iv. Preparation of Form-’B’ may be started as soon as division of Municipality into zones is completed.

v. Teams to inspect the buildings and fill up columns from 1 to 26.

vi. Columns 27 & 28 to be filled up by the Commissioner.

Property Tax Assessment List of Buildings

Following officers to test check 10% of the assessments.

1)Commissioner

2)Revenue officer

3)Town Planning officer

4)Municipal Engineer

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Fixation of Assessment -Calculation of Property Tax

1. Column 27 : Fixation of MRV2. Column 28 : Reasons for increase

To be filled up by Commissioner with self-contained reasons.

As soon as one assessment book is completed, assistants in revenue section shall take up calculation of property tax.

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Approved Assessment List

1. Commissioner to sign the assessment list for each ward as soon as it is completed.

2. Certify the correctness of the total amount of the property tax.

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Preparation of Special Notices

Twelfth step:

1. Special Notices are to be prepared as soon as one assessment book is completed in all respects.

2. Special notice to contain the following reasons for levy of property tax:

a) Zone No. :

b) Nature of - Plinth area - Nature of

Construction Usage

(1) - (2) - (3)

c) Monthly rental value fixed :

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Public NoticeThirteenth Step:

After completion of levy of property tax public notice under Rule 10 (1) of Schedule - II to be issued.

Notice to be affixed at :

1. Notice board of Municipal Office

2. Notice boards of important public offices

3. Publication by beat of drum

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Service of Special Notices

Fourteenth step:

All special notices to be served before the stipulated date i.e. 31-3-2015

Method of service:

1) By giving to the owner of the building by obtaining acknowledgement and date on office copy of special notice.

2) To serve on the adult member of the family.

3) To send by RPAD if the owner is a absentee landlord.

4) By fixing the same to the door of the building if the above methods are not possible.

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Receipt of Revision Petitions

Fifteenth step:

1. 30 days time from date of service of special notice is allowed for filing of revision petitions

2. Revision petitions shall be entered in the register of Revision Petitions

3. Docket sheet shall be prepared for every revision petition with eighteen items.

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Disposal of Revision Petitions

Sixteenth step:

1. Hearing of the revisions petition

2. Commissioner to record the statement of the petitioner

3. Speaking order to be passed by the Commissioner

4. Model speaking order is given in Annexure-III of the Circular.

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Disposal of Appeals

Seventeenth step:

1. Appeal lies to RDMA on the orders passed by the Commissioner

2. Appeal to be heard

a) if it reaches within 15 days from the date of receipt of orders from the

Commissioner

b) Tax to be deposited within 15 days 54

Contd..

3. Appeal to be entered in the register of appeals

4. Docket sheet to be prepared

5. Hearing of the appeal

6. Consultation with Municipal Chairperson

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Contd..

7. RDMA to record the statement of the Appellant

8. Speaking order to be passed by the Commissioner

9. Model speaking order is given in Annexure-III of the Circular

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Levy of property tax on lands

1. Property tax shall be levied on lands -

a) Not used for agricultural purposes

b) Not occupied adjacent to the building

2. Area not exceeding three times of plinth area of the building including its site or vacant land to the extent of 1000 Sq. Mts. whichever is less shall be deemed to be adjacent premises of the building.

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Contd..

3. Capital value of lands fixed by Registration Department to be the basis for levy of tax.

4. Property tax shall be levied at 0.20% of capital of the land

5. Assessment list of lands shall be prepared in Form – C

6. Procedure prescribed for assessment of buildings shall be followed for levy of property tax on lands.

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Exemptions from payment of Property Tax in Municipalities

a) Places set apart for public worship.

b) Choutries

c) Recognized educational institutions including hostels used for Charitable purposes.

d) Ancient monuments not used as residential quarters or as public offices.

e) Charitable hospitals and dispensaries.

f) Burial and burning grounds.

g) Irrigation works vested with the Government.59

Exemption of owner occupied Residential Buildings

ARV upto

Municipal Corporations Rs.900/-

Selection and Special gradeMunicipalities

Rs.450/-

Other municipalities Rs.300/-

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Houses constructed for Urban Poor

In respect of houses constructed for urban poor, property tax shall be collected at one rupee per half-year

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Judgment dt: 29.12.94 of High Court of A.P.

1. Determination of Property Tax belongs to Commissioner.

2. Advisory Committee has no role to play.

3. ARV fixed by the Commissioner shall be limited to the fair rent determined or determinable under Rent Control Act.

4. Commissioner may fix a lesser rental value subject to the maximum as above.

5. Commissioner to dispose of the objections notwithstanding Form ‘A’ notification.

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Judgment of Supreme Court

Hon’ble Supreme Court in Civil Appeal No. 4052 of 1996 in its judgment dated 2.5.2001 ordered that the findings / decision of the High Court in Point Nos. 3 and 5 as stated in the judgment under challenge are set aside.

Important Observations of the Supreme Court

1. The Act and Rules provide a complete code for assessment of the Property Tax to be levied for the buildings and lands.

2. The fair rent determined under the Rent Control Act in respect of a Property is not binding on the Commissioner.

3. The committee set up by the State Government has no statutory existence.

4. Its recommendations are advisory and are not binding on the Commissioner.

5. The provisions of Rent Control Act will not apply for fixation of annual rental value for levy of Property Tax.

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Impact of New System of Property Tax

1. Tax payers Acceptability

2. Transparency

3. Simplicity in assessment of property tax

4. Buoyancy in revenue

5. Reduction in corruption

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Reasons for success of New system of Property Tax

1. Designed by few Municipal Commissioners in 1988 – 89.

2. Peoples participation in fixation of monthly rental value.

3. Extensive consultations with stakeholders at local, regional and State level for a period of two years.

4. Training to all Municipal Commissioners and Staff.

5. Absence of discretion to assessing authorities

6. Simplicity in the entire system.

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PPT on new system of property tax in Telangana Dt. 18-10-2014

THANK YOU