Mumbai Property Owners to Pay Taxes as per Old System

The Bombay High Court recently intervened in the new tax regime and allowed property owners in Mumbai to pay taxes as per old rates along with a 25% differential between the proposed and the old system until a final decision is made. This has come as an interim relief for property owners in Mumbai.

The new tax system

The proposed tax system is based on the capital value of property. It is calculated based on the ready reckoner value, taking into account the age, price, location and the property type. The tax calculation previously used was based on a ratable value that represents the annual rent the property is or can be leased out for.

According to the new system, the proposed property tax is 0.35% of capital value for residential units, 1.3% of property value for offices and 2.6% for banks. This will increase property taxes by 100%-300%. For example, the property tax for a 1,000 sq.ft. in localities such as Cuffe Parade, Nariman Point, Napean Sea Road and Worli will be between Rs. 8,540 and 24,690. The taxes in areas such as Ghatkopar, Mulund, Kandivali and Borivali will be between Rs. 3,280 and 3,850.

Also within the same area, old buildings will be paying less while redeveloped and new buildings will be paying higher taxes. For example, old buildings on Napean Sea Road will be paying Rs. 1 per sq.ft. per month while the adjoining new/redeveloped building will be paying Rs. 24.69 per sq.ft. per month which is almost 25 times more.

The proposed tax system will lead to a huge disparity between the suburbs and South Mumbai, considering residents in both regions get the same service from the municipal corporation. Also, the high property taxes for redeveloped buildings will hurt the city’s redevelopment market, forcing people to move outside the city. The new tax system will impact more than 2 lakh self-occupied, vacant and leased properties in Mumbai.

Several organizations including the Property Owners’ Association had filed a petition against the new property tax regime in October 2013.