MC Explains: What is property tax & what happens if you don’t pay it on time

Property tax is charged by the government on all tangible real estate assets.

Just like income tax is payable against the income of a person from various sources, one must also pay tax against the immovable property owned by them.

Every property is a taxable asset. Property tax is the tax that is paid by the occupier of any land, building, premises, flat, gala, unit, etc., to the municipal corporation or the local government of his / her area. Property tax is charged by the government on all tangible real estate assets.

Such taxes are the principal source of revenue of a body like the Bombay Municipal Corporation (BMC), the amount of money collected indicating the value of resources owned by residents.

Law governing property tax

Every state has local laws governing property tax. In Mumbai, property tax is payable per the provisions of the Mumbai Municipal Corporation Act, 1888 (MMC Act).

Also read: Planning to buy a joint property with your spouse? Here’s what you should know from the tax point of view

What constitutes property tax?

Per the MMC Act, property tax shall be levied on buildings and land in Brihan Mumbai and shall include various taxes / charges such as water tax, water benefit tax, sewerage tax, sewerage benefit tax, general tax, education cess, street tax, betterment charges, and so on.

Payment of property tax

Per Section 197 of the MMC Act, property tax is payable in advance in half-yearly instalments on the first day of April and October. Some other states and their municipalities mandate annual payments.

Per Section 146 of the Act, property tax shall be levied on the occupier of the premises. Thus, the responsibility to pay property tax shall be on:

·      If the premises are let out - the lessor.

·      If the premises are sublet - the superior lessor.

·      If the premises are unlet - the person in whom the right to let the same vests.

·      If the premises are held / occupied by a person who is not the owner and the whereabouts of the owner cannot be ascertained – the holder / occupier of the premises.

However, if a land has been let for any term exceeding one year to a tenant – and such tenant / any person deriving title from such tenant has built upon the land – the property tax assessed on such land and buildings erected thereon shall be levied on the tenant or such person deriving title through the tenant, whether or not the premises are in their actual occupation.

Usually in cases where a society has been formed, if the records of the BMC have been updated in favour of the society, the property tax bills are issued in the name of the society. The society accordingly makes payment of such property tax for the building as well as the land, and proportionately charges members for the same. Alternatively, tax bills may be issued in the name of individual owners of the land  units, who will then be liable to make the necessary payments.

In case of the redevelopment of a building, if the premises are held or developed by a developer, such developer or such persons holding the right to sell the property on behalf of the developer shall be liable to pay the property tax until the redevelopment and / or the actual sale is effected.

Also read: Here’s what you must keep in mind before buying property in 2023

Why is it important to know about property tax?

If you do not pay your property tax, there’s trouble waiting for you.

In cases where the bill is issued in an individual’s name:

If an individual owner of a property fails to pay the tax (together with penalty or interest or both) such sum (with all costs of recovery) may be recovered under:

i. A warrant to be issued by the Commissioner (a) by sale of the goods and chattels found in the premises, or (b) by sale of the property, unless the amount due and payable is paid within 21 days; or

ii. Attachment and sale of the immovable property of the defaulter.

When a warrant is issued, an order may also be passed prohibiting the defaulter from transferring or charging (i.e., creating a mortgage, lien, etc.) the property in any way, and all persons from taking any benefit from such transfer or charge. In simple words, you cannot transfer / sell your property if you have due and unpaid property tax bills.

Upon attachment, any transfer of the property (such as by sale, gift, mortgage, lease, etc.) shall be made with the permission of the BMC, failing which, such a transaction shall be treated as void as against the rights of BMC to enforce the attachment.

In case a property has been taken on rent and the owner of the property fails to clear the property tax bills raised, such occupier on rent may also be served with the bills and may be held liable to pay the same for such period during which the occupier was in occupation of the property. Upon the occupier failing to do so, the amount may be recovered from him as it would be from the owner of the property.

In cases where the bill is issued in the name of the society and recovered in maintenance charges:

Under the provisions of the MMC Act, if any property tax is due and unpaid in respect of property owned by a co-operative housing society, after a bill for the same has been duly served on the society primarily liable for its payment, the Commissioner may serve a bill on each of the members of the society for such portion of the tax proportionate to their interest in the entire property. Upon such a bill being raised, the member must make the necessary payment within a period of 30 days, failing which, the same may be recovered from him as if the amount were a property tax due by him.

Further, it is important to note that if any sum is paid by or recovered from a member as per this provision, he shall be entitled to credit for the same.

Conclusion

In any case of default of payment of property tax, it is important to note that the your municipality / local body may take action including, but not limited to, issue of warrant and attachment of the property. Goods and belongings of a defaulter against whom a warrant is issued may also be seized wherever the same may be found and may be sold.

Alternatively, a suit may be filed before the appropriate court for recovery of the dues. Property tax dues form a first charge on the property against which it is pending.

Thus, it is imperative for all property owners to be mindful of the tax liability against their property, and further, for all prospective purchasers to conduct the necessary due diligence pertaining to property tax liability and arrears against of any flat, shop, unit, office, gala, land, etc., they plan to procure.