Bengaluru is set to see a sharp rise in property tax after the local municipal corporation Bruhat Bengaluru Mahanagara Palike (BBMP) proposed guidance value-based tax collection. The proposal will likely push up already soaring apartment rentals, experts have said.
Guidance value is the minimum price of a property, as determined by the government.
According to the new draft notification, the property tax will be collected based on the guidance value or circle rates in the areas. Previously, the municipality used to collect property tax based on zonal classification (A-E) area-wise.
What are the new changes?
One of the major changes proposed in the draft notification is that the owners of rented properties will have to pay double the tax compared to self-occupied properties. The new tax rates will be fixed at 0.2 percent of the guidance values for rented properties, and 0.1 percent of the guidance values for self-occupied ones.
Experts say this can also lead to an increase in rents in parts of the city, especially amid a rental crisis with rentals shooting through the roof in Bengaluru.
They added that with the new proposal, owners will have to pay more taxes than they do today, as the state government last year in October increased the guidance values in the state to the tune of 25-30 percent on average. The move was aimed at reducing the gap between guidance value and actual property prices.
However, experts pointed out that after the increase in guidance values last year, certain parts of the city’s outskirts, where property prices are more affordable, have actually seen the guidance value becoming higher than actual property prices.
"Another major impact can be an overall increase in property tax, as in several places the properties are being sold at lower prices than the guidance value itself," Anil Kalgi, president of the Bangalore City Flat Owners' Welfare Association added.
Officials from BBMP added that the move will improve the efficiency of tax collection and also rationalize the system. They hinted that the implementation will only commence in the next financial year.
The proposal also includes an annual hike in property tax by 5 percent every year on April 1, starting from 2025.
Homebuyers write to the state government
Karnataka Home Buyers Forum, an umbrella body of homebuyers in the city, has written to the BBMP commissioner seeking changes in the proposed system.
Dhananjaya Padmanabhachar, president of KHBF, said, "If the property tax is increased by 5 percent every year, there are chances of property prices and rent increasing drastically which becomes a financial burden for middle-class home buyers."
Additionally, the body requested the state government to also consider the carpet area, or the actual usable space within a property, while calculating the taxes.
"Real Estate Regulatory Act (RERA) mandates selling the flats based on the carpet area to flat owners. Thus if property tax is to be charged for the ownership of the property, the government should also include this parameter," he added.
Vishnu Gattupalli, General Secretary, Bangalore Apartments’ Federation, added that the net increase in property tax can be 100 percent in several prime areas, especially in apartments with high guidance value.
"Such an increase in guidance value without much development on the ground level is a bit baffling. Also, there is an ambiguity that if there would be different charges for common areas of apartments, facilities like clubhouse, open area if any, whether these components will be added separately to the taxes."
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