Mumbai property owners plan to move court against new tax system

The new capital-value based property tax system that comes into effect from April 2010 has raised serious concerns for housing societies and building owners in Mumbai who are now planning to move the court against this retrospective move which will increase taxes by 100-300 percent, forcing many to move out of the island city.

According to a report in the Economic Times, the Property Owners’ Association- which represents 2,700 property owners controlling at least 10,000 buildings in Mumbai - will file a writ petition in the Bombay High Court before 20 April challenging the new property tax bill.

The transition to the new method of collecting property taxes, aimed reforming the municipal tax system, has become a major cause for concern due to the base value, which the Brihanmumbai Municipal Corporation is considering to compute the property’s capital value.

As Firstpost had reported earlier, the base value is linked to the ready-reckoner rate, which the state government’s town planning department decides, stipulating rates for various areas like residential, office, shop or commercial and industrial, against the previous system, that was based on the rental or rateable value. In the earlier system, residents of South Mumbai paid low taxes as buildings were assessed in the 1920s when the rent was quite low and high taxes were being paid by residents in suburbs and extended suburbs where buildings were constructed after 1960 and the rent was much higher.

The change means now the tax is being calculated on the market price of the property. The bill also included arrears since 2010, which makes the total amount rather daunting.

According to experts and activists, the BMC has rationalised area-wise property tax without taking into account several crucial factors, such as leased and freehold land as well as multi-age and multi-type buildings, which affect the amount to be paid as property tax.

Already, a Borivli-based social activist Rajendra Thacker has questioned the basis of computing tax according to the ready reckoner rate (RR).

[caption id=“attachment_684107” align=“alignleft” width=“380”] Reuters[/caption]

The PIL, which says RR cannot be the basis to compute tax, is scheduled to come up for hearing on April 29. As per the PIL, the manner in which the RR is prepared is arbitrary and against rules of natural justice.

The BMC has clubbed 400-500 plots together to arrive at the base value, which includes luxury apartments, semi-permanent bungalows and even slums, while each structure will have different value given its type. But ground realities that affect a property’s price are not taken into consideration in the ready-reckoner rates.

With the new system, the residential tax for 1,000 sq ft in areas like Nariman Point, Worli, Cuffe Parade and Nepean Sea Road is between Rs 8,540 and 24,690. Whereas the taxes in areas, including Mulund, Ghatkopar, Borivali and Kandivali are between Rs 3,280 and 3,850.