In a proposed decision to be applicable from FY2021-2022, the Urban Development Department has directed the BBMP to discard the traditional ‘unit area value’ method and adopt the ‘guidance value’ method to calculate property taxes, allowing the government to increase market borrowings from the current 3% of the State GDP to 5%.
This would lead to increase in tax collection, but put many property owners, especially senior citizens and people with no income, in a difficult situation.
It is hoped the State budget would postpone the adoption of the new model till the economy stabilises to some extent.
The BBMP has not increased property tax since 2016, and as per protocol, it must increase the tax every 3 years. Falling behind on tax collection, the BBMP is looking at increasing it by 15-30%. This would be looked upon as an added burden, with people already finding it difficult to pay existing taxes. For commercial property, increase in property tax will result in increased rents, thus making it difficult for businesses in the present predicament.
The budget would be providing a major relief if it refrains from increasing the tax during this fiscal. In 2020, the government had paused hike on guidance values till 2021, considering the pandemic-induced challenges in the sector.
With the market going through a difficult phase, there have been demands to reduce the guidance values. Higher values hindered the developers in selling properties at a lower rate than those mentioned.
Lowering guideline values would result in reducing stamp duty on property, thereby augmenting buyer demand and also providing relief to developers.
While buyers could benefit from relatively cheaper property owing to lesser stamp duty and registration charges, for a seller it would translate to lower capital gains tax.
Thus, it is expected that the State budget in this fiscal would reduce guideline values to boost traction in the real estate industry.
(The author is CEO-APAC, Vestian Global Workplace Services)