Commercial Property Tax in India

Do you know what commercial property tax entails? This article will discuss what this type of tax is, how to calculate it, and the step-by-step payment for the commercial property tax.

Let's find out everything there is to know about commercial building property tax!

What is commercial property tax?

Commercial property tax is the tax paid by a property owner to the local government, such as the municipal corporation, on the property used for commercial purposes. It includes both the property that a person owns and rents out to others to run a business, commercial venture, or industry.

Commercial property tax in India has its basis on "real property." Municipalities use this money earned from these taxes to build roads, schools and maintain public conveniences.

How to calculate commercial property tax?

Every municipality or state has its commercial property tax calculation method, so visit their website to get an idea of the details of how to calculate commercial property tax. However, here are some general pointers about how the calculations are conducted.

Commercial property tax is calculated based on some of these factors:

Location of your property
State of occupation, whether it is self-occupied, rented, or vacant
Commercial usage of the property
Available amenities such as a provision of a car park, store, or rainwater harvesting
Construction type, whether multi or single storied
Age of the construction on the land
Floor space index
The carpet area of the property

These are some factors based on which the commercial property tax is calculated around municipalities across India.

Municipalities may also use any of the following three methods to calculate your commercial property tax. These three methods are as follows:

Unit area value system

Under this system, the per unit area of the total carpet area or the built-up area is first determined. Based on this acreage, the expected returns are calculated. Commercial property tax is then calculated on these expected returns.

Capital value-based system

Under this category, the main factor is the market value of a commercial property. Firstly, the local government will calculate the market rate for the property based on the location and type of property. This rate undergoes revision every year. We then calculate tax on the market rate.

Annual rental value system

This system decides tax based on the rent that property owners can earn from it. We calculate the tax based on the rent you would receive on the property. Authorities will look at the location, amenities, size of the property to arrive at the tax value.

Every municipality in India uses any of these three ways to decide how to calculate commercial property tax. You can also easily find a commercial property tax calculator for your particular municipality and find out how much tax you owe on the property. However, most commercial properties will have a taxation scheme more or less similar to normal property tax.

Municipalities in Mumbai and Bangalore have a commercial property tax calculator. You can check them out on their respective websites.

Paying commercial property tax

There are at present two ways in which you can pay commercial property tax. These are the online payment process and an offline payment process. Here we will cover the step-by-step ways to clear your commercial property tax.

Steps to follow for online payment

Several municipal properties in India allow for online payment of tax.

Step 1: Visit the municipal corporation's website of your city where the property is.
Step 2: Choose the tab where you have to pay your tax and navigate to it.
Step 3: Choose the correct form that you will need. This form could usually be Form 4 or 5 based on the categories that you select. Also, the documents will try to determine if there have been any changes made to the property in question.
Step 4: Select a year of assessment, preferably the current year, if you haven't cleared any backlogs. Most municipalities allow you an option to clear away any arrears if you have them for your commercial property.
Step 5: Now, it is time to fill in the property's details, including the ID and any other documents relevant to your property, such as the zone.
Step 6: After you have entered all the necessary information, you can proceed to payment.
Step 7: Use your credit or debit card, as the case may be, and complete clearing the property tax dues.
Step 8: Once you have made the payment, you can print out the challan or tax receipt.

Following these easy steps, you can pay commercial property tax online.

Steps to follow for offline payment

Apart from the online payment of commercial tax, there is also the offline method of payment. Here's how to do it.

Step 1: Visit the nearest municipal corporation office.
Step 2: Carry all the details about your property.
Step 3: Ask for a form.
Step 4: Fill up the form with all relevant details and as accurately as possible.
Step 5: Complete the payment at the counter.
Step 6: Submit the form.

Acquiring commercial property tax challan

Once you complete the offline or online payment, you need to collect a commercial property tax receipt. You will receive this receipt directly when you pay online, and you need to collect it from the counter if you pay it offline.

In conclusion, commercial property tax is more or less similar to other kinds of property tax. The municipality to which you belong may point out some differences. So get ready and hurry over to pay your commercial property tax today!

Frequently Asked Questions

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Who decides the commercial property tax?

The local government decides and levies such taxes. Municipalities, which are the local bodies in charge of collecting property tax, are responsible for setting commercial property tax rates.

Can tax be saved if I sell a commercial property and invest it in residential property?

According to section 54F, there is an exemption if the net proceeds from the sale of commercial property are wholly invested into residential property. However, you need to have held the commercial property for at least 24 months, according to some laws.

What is the tax on commercial property that earns rent?

Rent that is earned from commercial property is generally taxed under the section of "Income from House Property." This rule applies to all properties, whether commercial or residential.

Can I save capital gains tax on the sale of commercial property?

There is one way in which this can be done. You need to invest proceeds in the residential property or capital gain bonds of some particular institutions, and then you can claim an exemption under section 54EC.