PROPERTY owners in Delhi may soon find friendlier tax laws in place. a welcome change from things at present and past. Tax laws applicable to property owners in Delhi were last amended through a promulgation of the Municipal Corporation of Delhi (MDC) in October 1994. And while an attempt was made to make mandatory the self-assessment of taxes by property owners, nothing was done to meet the objection of Delhites to the burgeoning burden of property taxes, particularly in the case of properties that had changed hand in the intervening period.

In many cases, property taxes have risen 100 times because the taxes area a function of the cost of acquisition, which has continued to rise year after year due to the wide gap between availability and demand for dwelling units. As a consequence, the purchasers try to ward off the recurrent liability of paying enhanced property taxes by resorting to purchasing their properties under a power of attorney arrangement. Under reporting of the values at which the sales transactions are concluded is also common event. As a result, it is government revenues and municipal taxes that are the greatest casualty.

While property owners earning rents of up to Rs 3,500 per month are protected against revisions in their rateable values as per the provisions of the Delhi Rent Control Act, amended in 1989, and their property taxes continue to remain fixed as a function of the previously fixed standard rent, those in receipt of higher rent find that their property taxes have increased substantially and continue to rise periodically because they are fixed and recovered as a function of the rent received / receivable by them.

Yet another offshoot of the prevailing property tax regime has been the reluctance of property owners to opt for conversion of their land tenures from leasehold to freehold because their land conversion sanad will take into account the component the lease conversion charge that an owner might be called upon to pay to seek change in land tenure along with the registration charges payable there to. The upshot of these additions means more than doubling of the previously fixed rateable value for self-occupant owners who had secured their leased lands some two decades earlier.

In the light of the difficulties. there has been an unequivocal demand by all section of owners that the computation of property taxes payable by a property owner be delinked from the concept of cost of acquisition or the rent recoverable, which in effect constitutes a double taxation on the same income and be replaced with a system that advocates area-wise rates per square foot so that all owner can enjoy a level playing field. There has also been a universal demand to not only simplify the tax calculations for an honest property owner wishing to pay taxes on the basis of self-assessment, but also that there be absolute transparency in such computations.

While the government and the MCD have taken over 10 years to address the genuine grievance of the property owners, at least a beginning seems to have been made now with a proposal having been made now with a proposal having been mooted by the MCD’s Special (Law and General Purpose )

Committee to undertake a fundamental change in the property tax structure. The committee has proposed that tax should be calculated on a simple area based method in which the tax as per the laid down formula will be calculated on the basis of carpet area measured under self-assessment and this figure will be multiplied by the unit area rate to be notified by MCD annually to arrive at the assessment value (AAV) of the property.

The MCD, while fixing the Unit Area Rate, will take into consideration the location of the property, the type of building and the intended use of the building. this rate, when multiplied by the carpet area of the premises, shall constitute its AAV. The MDC will be free to revise the AAV once a year according to the rise or fall in the cost of the living index as the datum during the immediately preceding year.

It is proposed that the onus for timely payment of property taxes be transferred to the property owners (as in the case of income tax) and the MCD be absolved from the responsibility of having to pass on the secondary responsibility for payment of these taxes on the tenant to ensure that the owners do not cheat the MCD of its legitimate dues with a deterrent penalty for wrong declaration / assessment and delayed payments.

As in the case of income tax, the MCD has proposed that delayed tax payments should attract interest at 24 per cent per annum i.e. 2 per cent per month or part thereof. To ensure compliance of these laws, the MCD shall check a part of the self-assessment returns filed by the tax assesses each year and defaulters/tax evaders shall be held accountable with the imposition of stiff penalties.

These proposals, which from part and parcel of the package of reforms under the Delhi Municipal Corporation Act, have now been referred to the Standing Committee of the MCD for approval. Pursuant to the approval being obtained, these will be referred to the lieutenant governor of Delhi first and then the ministry of urban affairs. The various approvals shall be notified for public comment. The government, after considering the public views, will issue a notification amending the Delhi Municipal Corporation Act and stipulating the date from which the change property tax policy would become effective.

While a beginning to amend the tax structure has already been made, it is anybody’s guess as to when the amended rate structure shall become effective. Taking into consideration the pace at which the MCD and the government work, it would be in the interest of property owner lobbies and NGOs to exert pressure on the corporators and other elected representatives to see that a citizen friendly tax structure is introduced without any delay.