The short answer
Property tax (house tax) is levied by the urban local body — municipal corporation, municipality or cantonment board — and in many states by gram panchayats in villages, under the state's municipal law. It is not an income tax and not a central tax; the method, rates, rebates, due dates and penalties are set city by city.
There are three broad methods. Annual rental value (ARV): tax is a percentage of the rent the property could reasonably fetch, as fixed by the city. Unit area value (UAV): tax is based on a rate per square metre or foot fixed for each locality, adjusted by factors for age, use, structure and occupancy. Capital value (CV): tax is a percentage of the property's market value, usually derived from the state's ready reckoner rates.
Delhi's municipal corporation uses the unit area method; Mumbai's (the Brihanmumbai Municipal Corporation) uses capital value; Bengaluru uses a unit area value system with owner self-assessment (SAS); Chennai and Hyderabad have used annual rental value systems; Kolkata uses unit area assessment. Methods are revised from time to time, so check your own city's current rules.
Most cities give a rebate for paying the full year's tax early — Delhi's MCD, for example, offers a 10% rebate for lump-sum payment by its notified date, and Bengaluru offers 5% for payment within the first month of the financial year — and charge interest or penalty for late payment.
For income tax, property tax you actually pay in a year is deducted from the rent of a let-out property before the 30% standard deduction. See the guide on income tax on rental income.
Who pays, and on what
The owner is primarily liable, and the bill is raised in the name recorded in the municipal assessment register. If the property is let, the lease can require the tenant to pay, but the city looks to the owner if it is not paid.
The tax is charged on buildings and on vacant land within the city's limits. Many cities charge vacant land differently, and many give exemptions or concessions: for properties used by charitable bodies, for ex-servicemen, for women owners, for senior citizens, for small homes below a set area, or for self-occupied homes compared with let-out ones. These vary widely; read your city's notification.
The bill often includes more than the general tax: water benefit tax, sewerage tax, education cess, street tax, fire tax or other components set by the state law. For income tax purposes, all of these local taxes paid by the owner count as municipal taxes.
Method 1: annual rental value
The city fixes the rent a property could reasonably be expected to fetch — not the rent you actually charge — using rates per square foot for each zone and type of building, and then applies a percentage tax rate to that annual value, often after allowing a deduction for repairs.
Illustrative example with made-up figures, not any city's actual rates: a 1,000 square foot flat in a zone where the city's monthly rental value is ₹5 per square foot has a monthly value of ₹5,000 and an annual value of ₹60,000. If the city allows 10% for repairs, the taxable annual value is ₹54,000. At a tax rate of 10%, the tax is ₹5,400 for the year, plus any cesses.
Chennai (Greater Chennai Corporation) and Hyderabad (GHMC) have used annual rental value methods. Older systems based on actual rents caused disputes and uneven bills, which is why many cities moved to area-based methods.
Method 2: unit area value
The city divides its area into categories or zones and fixes a base value per square metre for each. The annual value is the covered area multiplied by that unit area value and by multiplicative factors for the age of the building, its use (residential, commercial, industrial), its structure (pucca, semi-pucca, kutcha) and occupancy (self-occupied or let). The tax is a percentage of that annual value.
Delhi's Municipal Corporation has used the unit area method since 2004, with colonies grouped into categories A to H. Bengaluru adopted a unit area value system with a self-assessment scheme in which owners declare the area, zone and use and compute their own tax; since 2025, collection is handled by the city corporations under the Greater Bengaluru Authority, with the same method. Kolkata's municipal corporation moved to unit area assessment from 2017.
Illustrative example with made-up figures: covered area 100 square metres × unit area value ₹600 per square metre × age factor 0.9 × use factor 1 (residential) × structure factor 1 × occupancy factor 1 (self-occupied) = annual value ₹54,000. At a tax rate of 10%, the tax is ₹5,400. If the same flat were let out and the occupancy factor for let-out property were 2, the tax would double. Look up your city's actual unit area value, factors and rates before estimating.
Method 3: capital value
Tax is a percentage of the property's capital value, which is based on its market value. In Mumbai, the BMC computes capital value from the ready reckoner rate for the location, the carpet or built-up area, and weightages for the type and age of building, use and floor, and applies separate rates for residential and non-residential use.
Illustrative example with made-up figures: a flat whose capital value works out at ₹1,00,00,000, at a rate of 0.5%, would pay ₹50,000 a year in general tax before other components. Actual rates, weightages and components differ; Maharashtra's rules also give relief for smaller homes in some cities. Use your corporation's bill or calculator, not this example.
Capital value systems track market prices more closely, so bills can rise when ready reckoner rates are revised. States often cap the increase at each revision.
Rebates, due dates and penalties
Early payment rebates are common. Delhi MCD has offered 10% for paying the whole year's tax in a lump sum by its notified date (for 2026-27 the date was extended from 30 June to 31 July 2026). Bengaluru offers 5% for paying the full year within the first month of the financial year (the city has extended this window in some years). Other cities offer similar incentives. Check each year: dates are often extended by notification.
Late payment usually attracts interest — often a percentage per month on the unpaid amount — and in some cities a penalty. Arrears accumulate against the property, not just the person, and a buyer can inherit them.
Persistent non-payment can lead to attachment of rent or bank accounts, sealing of commercial premises, or attachment and sale of the property under the municipal law, after notices. Arrears also block the issue of a no-dues certificate, which banks, societies and buyers ask for.
Amnesty schemes that waive interest or penalty if arrears are cleared are announced from time to time; they are not a reason to delay.
How to pay online
Almost every large city now has an online property tax portal. You will need your property ID (also called the assessment number, PID, UPIC, SAS application number or property tax index number), which is on your last bill or receipt.
Typical steps: find the property by its ID; check that the owner's name, address, area and use are correct; review the computation and any arrears; pay by net banking, card or UPI; and download the receipt. Self-assessment cities ask you to file the return of particulars each year, even if nothing has changed.
If your property has never been assessed, or the details are wrong, you will usually need to apply at the zonal office with the sale deed, a building plan or completion certificate, and identity proof. Underpayment because of an under-declared area can lead to a demand for the difference with interest; declare correctly from the start.
Property tax and mutation
After you buy a property, apply to the municipal body to change the name in its assessment records — municipal mutation, sometimes called khata transfer in Karnataka or name transfer elsewhere. Until then, bills continue in the seller's name.
Most cities require the seller's property tax to be paid up to date before they will mutate the record into your name. Ask for the last few years' paid receipts and a no-dues certificate before you pay the final amount, and make the sale agreement say that arrears up to the date of sale are the seller's.
A property tax receipt in your name is not proof of title, but it is evidence of possession and is often asked for when you apply for utility connections, loans and building approvals. The guide on property mutation explains the revenue and municipal processes.
The income tax deduction
For a let-out property, municipal taxes actually paid by you during the tax year are deducted from the annual value before the 30% standard deduction (section 21 of the Income-tax Act, 2025; section 23 of the 1961 Act). It does not matter which year the tax relates to: arrears paid this year are deductible this year. Taxes paid by the tenant are not.
For a self-occupied home, the annual value is nil, so the property tax gives no income tax deduction.
Illustrative example: rent ₹4,80,000 for the year; property tax paid ₹18,000, including ₹6,000 of arrears for an earlier year. Net annual value: ₹4,62,000. 30% deduction: ₹1,38,600. Income from house property before interest: ₹3,23,400.
Common mistakes
Not changing the municipal record after buying, and missing the bills — or inheriting the seller's arrears.
Declaring a smaller area or self-occupied use under self-assessment when the property is larger or let out.
Missing the early payment rebate because the date changed.
Assuming property tax receipts prove ownership.
Claiming property tax the tenant paid, or tax that is due but unpaid, as a deduction against rent.
Ignoring a commercial use in part of a residential building; many cities charge the commercial portion at higher factors or rates.
This is general information, not tax or legal advice. Tax law, rates and forms change with each Finance Act; confirm how the rules apply to your own facts with a chartered accountant before you sign, pay or file.
Common questions
How is property tax calculated in India?
By each city under its own law, using one of three methods: annual rental value (a percentage of notional rent), unit area value (a rate per square metre adjusted for age, use, structure and occupancy) or capital value (a percentage of market value).
Which method does Delhi use?
The Municipal Corporation of Delhi uses the unit area method, introduced in 2004, with colonies grouped into categories A to H.
Which method does Mumbai use?
The Brihanmumbai Municipal Corporation uses the capital value system, based on ready reckoner rates and weightages for building type, age, use and floor.
How is property tax calculated in Bengaluru?
By a unit area value system with owner self-assessment (SAS). Since 2025, collection is handled by the city corporations under the Greater Bengaluru Authority; the method is unchanged.
Is there a discount for paying property tax early?
In most cities, yes. Delhi MCD offers 10% for lump-sum payment by its notified date; Bengaluru offers 5% for full payment within the first month of the financial year. Dates and rates change, so check each year.
Can I deduct property tax from rental income?
Yes, the amount you actually paid during the year, before the 30% standard deduction. Not tax paid by the tenant, and not tax that is due but unpaid.
What happens if I do not pay property tax?
Interest and penalty accumulate against the property. After notices, the city can attach rent or bank accounts, seal commercial premises, or attach and sell the property. Arrears also block no-dues certificates and mutation.
Sources
- Delhi Municipal Corporation Act, 1957 and MCD property tax portal (mcdonline.nic.in) — unit area method, categories, rebates; checked 2 October 2026
- Mumbai Municipal Corporation Act, 1888 and BMC property tax portal (portal.mcgm.gov.in) — capital value system; checked 2 October 2026
- Bengaluru property tax self-assessment portal and Greater Bengaluru Authority notifications — unit area value, rebate; checked 2 October 2026
- Kolkata Municipal Corporation (kmcgov.in) — unit area assessment; Greater Chennai Corporation (chennaicorporation.gov.in) and GHMC (ghmc.gov.in) — annual rental value; checked 2 October 2026
- Income-tax Act, 2025, section 21 (municipal taxes deducted in computing annual value; earlier section 23 of the 1961 Act); incometaxindia.gov.in; checked 2 October 2026
Last checked 2026-10-02.