If you live in the old parts of the island city and are charged property tax that is out of sync with the existing market value of your property, you could be in for a rude jolt. You may have to start paying property tax that would be assessed on the basis of the present market value of your house.



The state government has offered the Brihanmumbai Municipal Corporation (BMC) the option of charging tax based on the current capital value of a property.

It will move an amendment to the BMC Act of 1888, allowing the richest municipal body in the country to choose between the capital value system and the rateable value system, said Jairaj Phatak, principal secretary, urban development ministry. The state Cabinet has approved the move on Wednesday, Mr Phatak added.

If the amendment is passed by the legislature, the BMC would be legally authorised to collect tax based on the capital value system. At present, the BMC assesses property tax on the basis of the rateable system, which means the tax is linked to the construction cost of the property and the rent charged, if any. Currently, the BMC collects around Rs 1,400 crore per annum as property tax.

If the capital system is adopted, the kitty is expected to swell by at least Rs 300-400 crore.

For instance, the property tax for a residential property built in 1940 is calculated on the basis of the construction cost in 1940 and the rent it fetches to the landlord. If the BMC shifts to the capital value system, the owner the property will have to cough up tax on the basis of its present market value.

Residential property owners in suburbs have been paying property tax much more than their counterparts in South Mumbai because properties in suburbs, which are built recently, carry a much higher construction cost and rent. “This will pave way for a more rationalised, practical and equitable property tax regime across the city. It’s a welcome move," additional municipal commissioner Manu Kumar Srivastav told ET.

A Mantralaya official said the BMC could shift to the capital value system once the amendment is passed because the BMC has been proposing such a move for a long time.

The issue of property tax in Mumbai is closely linked with the Maharashtra Rent Control Act of 1999. The Act allows a property owner to increase rent only by 5% in the first year and by 4% every subsequent year.

The Maharashtra Rent Control Act had replaced the then Bombay Rent Control Act which had frozen rent at 1940 levels. Though the Act allows for a marginal increase in rent, it has virtually kept the rent much lower than the present market value of a property.

The 1999 Act benefits tenants and allows property owners or landlords to pay peanuts as property tax.