issues in property tax

ISSUES IN PROPERTY TAX

BASIS OF PROPERTY TAX

• AT PRESENT, THE PROPERTY TAX IS BASED ON THE RENT FETCHING CAPACITY OF THE PROPERTY.

• THE RATEABLE VALUE OF THE PROPERTY IS ITS ANNUAL RENT MINUS 10% FOR ANNUAL REPAIRS.

RENT

• Periodical payment to the Landlord for use of the property.

• Amount at which a property would let at a particular time

• By willing tenant to willing owner of property

• Landlord considering the merits and demerits of his property and tenant weighing advantages and disadvantages of various properties available.

TYPES OF RENT

• Market Rent: Fair and reasonable rent decided by landlord and tenant in open and competitive market

• Contract Rent: Rent agreed between landlord and tenant.

• Ground Rent: Rent as payment for land only.

TYPES OF RENT (COND)

• Rack Rent: Payment for land and building• Gross Rent: Total Rent received from the

property• Net Rent: Rent exclusive of all outgoings• Rising Rent: Rent which goes on increasing

during the term• Virtual Rent: Rent + Annual equivalent of

premium or capital expenditure

TYPES OF RENT (CONTD)

• Short Term Rent: Rent paid on daily or weekly basis

• Long term Rents: Rent paid by annual tenant.

• Concessional Rent: Concession is given in rent by landlord for various reasons , both landlord and tenant being fully aware of of market rent.


• Nominal Rent: Rent fixed when both the tenant and landlord are not aware of market rent ( Idea of giving concession is absent) Profit to landlord is below 5% of net profit.

• Token Rent: A negligible amount paid to landlord to legally establish evidence of tenancy.


• Rent From Employees: For residential accommodation provided to their officers and employees by public and quasi-public bodies.

• Rent from Relatives: Generally relatives are not considered as genuine tenants.

• Rent From partner:Partner in firm is not a Tenant.

TYPES OF RENT (CONTD)• Hypothetical Rent:

Principle of Hypothetical Rent—Rent

reasonably be expected from

hypothetical tenant.

Principle of ‘communibus anis’—Take

things by average.(Average year)

Principle of ‘rebus sic stantibus’– consider

circumstances prevailing at the time of

assessment (natural or due to Acts)


• Standard Rent:

• Rent fixed by Court under clause (d) of Section 11(1)of the Rent Act.

• OR, Rent at which property let on or before 1st Sept.1940

• OR, Rent at which property was first let after 1st Sept. 1940.

CHARACTERISTICS OF RENT

• Governed by economic law of demand and supply

• Dependant on particular time

• Offered by willing tenant to willing owner

• Landlord considering merits and demerits of his property and tenant weighing advantages and disadvantages of various properties available

RENTAL VALUE

SOME CASE-LAW

SMT. PADMA DEVI CASE

• Gross Annual Rent is basis for assessment• Value of the property to the owner• What landlord would reasonably expect to

get from hypothetical tenant is Annual value.

• Hypothetical Rent cannot exceed the limit prescribed by law.

• Standard Rent is the maximum amount.

MOTICHAND HIRACHAND CASE

• The aggregate of income from advertising hoarding and actual rental value can be taken as annual value of the building for the purpose of assessment.

• Rent is calculated ‘rebus sic stantibus’ i.e. with ref. to existing physical condition and mode of actual use.

• Actual rent not conclusive evidence but indication of affordability of hypothetical tenant.

MOTICHAND HIRACHAND CASE (CONTD)

Every intrinsic quality and circumstances that add to the beneficial value of the

building must be taken into account when owner can expect extra over and above

standard rent of building.

STANDARD RENT AND SUB-TENANT

• Proper basis of assessment –Property’s value in the hands of owner or property.

• Under Section 7 of Bombay Rent Act, unlawful for landlord to receive as rent anything more than standard rent.

• Rent payable by hypothetical tenant is rent legally recoverable by the landlord.

STANDARED RENT AND SUB-TENANT (CONTD)

• Standard Rent is in relation to property and not person ( tenant or sub-tenant) so remains same.

• If premises undergo structural change --alterations, additions major improvements– change in identity of premises --consequent change in standard rent

• Standard rent is in ‘rem’ and not in ‘personem’—value of property unchanged inspite of change in mode of use.

STANDARD RENT AND SUB- TENANT(CONTD)

• Courts have held that it is not correct to revise ratable value on the basis of rent received by tenant from sub-tenant.

• Mere changes in user from residential to commercial is not sufficient ground to justify such revision.

APPLICABILITY

• Section 127(a) of the Calcutta Municipal Act,1923, Section 123 of the City of Madras Municipal Act,1919 and Section 154 of the B.M.C. act are all similar in terms.

STANDARD RENT NOT FIXED (GUNTUR M.C. CASE)

• Supreme Court held that it is illegal and ultra virus to increase rental valuation of properties beyond fair rent as per Rent Act.

RENT HIGHER THAN STANDARD RENT

• Supreme Court held that Rating cannot operate as a mode of sharing the benefit of illegal rack-renting indulged in by rapacious landlords for whose activities the law prescribes punishment.

SELF-OCCUPIED PROPERTIES

• Rent receivable from hypothetical tenant

• Standard rent as per Rent Act is the upper limit.

LEASEHOLD LAND WITH RESTRICTIONS

• Supreme Court held that for determining the

market price, proceed on the hypothesis that prior consent of the Govt. has been given, and as if the property was unaffected by the burden or restriction of payment of 50% of unearned increament and deducting therefrom 50% of the unearned increase in the value of land.

DRAWBACKS OF PRESENT SYSTEM

• RATEABLE VALUE CONNECTED WITH RENT CONTROL ACT

• NO BUOYANCY

• CAN BE CHANGED ONLY WHERE ADDITIONS OR ALTERATIONS

• TAX NOT COMMENSURATE WITH SERVICES PROVIDED

FUTURE TRENDS

IN PROPERTY TAX

ASSESSMENT

FUTURE TREND

• VARIOUS COURTS INCLUDING SUPREME COURT HAVE OPINED THAT THE PRESENT PROCESS BE RATIONALISED BY DEVELOPING APPROPRIATE SYSTEM

FUTURE TRENDS

• PROPERTY TAX CAN BE

• A) CAPITAL VALUE BASED

• B) AREA BASED

ADVANTAGES ENVISAGED

• NEW SYSTEM NOT RELATED TO RENTAL VALUE AND DISSOCIATED FROM RENT CONTROL ACT

• CAN BE ASSOCIATED WITH LEVEL OF SEVICES PROVIDED

• INSTRUMENTAL IN GENERATING MUCH NEEDED RESOURCES FOR THE MUNICIPAL AUTHORITIES

PRECAUTION NEEDED

• PRESENT PROPERTY TAX LEVIED IS BOGGED DOWN TO VERY LOW LEVEL

• POSSIBILITY THAT THE GAP BETWEEN PROPERTY TAX AS PER NEW SYSTEM AND AT PRESENT CAN BE LARGE

• NEED TO INCREASE THE SAME GRADUALLY

OBJECTIVES OF PROPERTY TAX REFORMS

• TO EVOLVE A SCIENTIFIC METHOD IN THE LEVY OF PROPERTY TAX IN THE MUNICIPALITY

• TO FIX THE ASSESSMENTS IN A UNIFORM MANNER IN RESPECT OF SIMILAR BUILDINGS SITUATED IN ONE LOCALITY AND USED FOR SIMILAR PURPOSE

• TO REDUCE THE DISCRETION AND TO AVOID ARBITRARINESS IN THE ASSESSMENT OF PROPERTY TAX


• TO SIMPLIFY THE PROCEDURE OF ASSESSMENT AND TO MAKE ADMINISTRATION TO BE OF MORE EFFICIENT AND EFFECTIVE IN THE LEVY OF PROPERTY TAX

• TO DELINK THE PROVISIONS OF RENT CONTROL ACT FROM THE METHOD OF ASSESSMENT OF PROPERTY TAX


• TO PROVIDE RELIEF TO THE BUILDING CONSTUCTED UNDER WEAKER SECTION HOUSING SCHEME AND TO OWNER OCCUPIED RESIDENTIAL BUILDINGS

• TO IMPROVE THE RESOURCES OF THE MUNICIPALITIES BY RESTRUCTURING THE METHOD OF ASSESSMENT OF PROPERTY TAX

ANNUAL LETTING VALUE

• THE ANNUAL LETTING VALUE OF THE LANDS AND BUILDINGS WILL BE FIXED WITH REFERENCETO ITS

• LOCATION• TYPE OF CONSTRUCTION• PLINTH AREA• AGE OF BUILDING• NATURE OF USE TO WHICH IT IS PUT

DIVISION OF MUNICIPALITY INTO ZONES

• THE ENTIRE MUNICIPAL AREA SHOULD BE DIVIDED INTO TERRITORIAL ZONES BASED ON

• CIVIC AMENITIES E.G. WATER SUPPLY, ROADS DRAINS ETC.

• MARKETS AND SHOPPING CENTRES• EDUCATIONAL INSTITUTIONS• BANKS, POSTAL SERVICES, PUBLIC OFFICES• MEDICAL INSTITUTIONS• FACTORIES AND INDUSTRIES

CLASSIFICATION OF BUILDINGS

• A) RCC SUPERIOR BUILDINGS

• B) RCC ORDINARY BUILDING

• C) MANGALORE TILED ROOFED BB MASONARY BUILDINGS

• D)COUNTRY TILED ROOFED BB MASONARY BUILDINGS

• C) TEMPORARY BUILDINGS

NATURE OF USE OF BUILDING

• A) RESIDENTIAL• B) COMMERCIAL • SHOPS, SHOPPING COMPLEXES• HOTELS, LODGES, RESTAURANTS• CINEMA THEATERS / PLACES OF• PUBLIC ENTERTAINMENT• C) PUBLIC USE• D) INDUSTRIAL

ALLOWANCES / REBATES / EXEMPTIONS

• DEDUCTION ALLOWED FOR AGE OF BUILDING

• REBATE TO OWNER OCCUPIED RESIDENTIAL BUILDINGS

• EXEMPTIONS TO RELIGIOUS, EDUCATIONAL, CHARITABLE MEDICAL BUILDINGS

• EXEMPTIONS TO OWNER OCCUPIED RESIDENTIAL BUILDINGS

• HOUSES OF URBAN POORS

DETERMINATION OF ZONAL LETTING RATES

• BASIS-

• CURRENT LAND VALUES

VALUATION

FOR ESTIMATING THE

CAPITAL VALUE

METHODS OF VALUATION

• 1] THE DIRECT COMPARISON OR

• COMPARATIVE METHOD.

• 2] THE CONTRACTOR’S METHD.

• 3] THE PROFITS OR ACCOUNTS

• METHOD.

• 4] THE RESIDUAL METHOD.

• 5] THE INVESTMENT METHOD.

COMPARATIVE METHOD• FIND OUT CONSIDERATION ACTUALLY PAID FOR OTHER

SIMILAR PROPERTIES IN THE SAME LOCALITY AND THREE TO FIVE YEARS PRIOR TO THE DATE OF VALUATION.

• FACTORS TO BE TAKEN INTO CONSIDERATION.• 1] LOCATION OF PROPERTY.• 2] SITUATION.• 3] LEVEL OF AMENITIES & FACILITIES.• 4] USER OF PROPERTY.• 5] AGE OF PROPERTY.• 6] CONDITION OF PROPERTY.• 7] FACILITES AVAILABLE IN THE PROPERTY.• 8] SIZE (FLOOR AREA) OF PROPERTY.

The Evidence

The Market

Should be based on

Transactions of similar properties

IN the same area

Obtained from

Recent Records

Comparative Valuation

Should be fairly stable

Underlying economic factors should be studied

of Frequent transactions

The evidence

Transactions of similar properties COMPARATIVE

VALUATION

In the same area

Recent Records Frequent Transactions

The Market

Should beFairly stable

UnderlyingEconomic

Factors shouldBe studied

COMPARATIVE METHOD

Belting Method

• If the depth of the plot is more than then the depth of the comparable plots in sales considered, this method is adopted to value the land.

1st Belt

2nd Belt

3rd Belt

X

1 ½ X

Remaining

Full Value

3/4th Value

Of 1st Belt

½ Value

Of 1st Belt

Recess Land

¾ of Belt Value

Recess Land¾ of Belt Value

R O A D

Belting Method

CONSIDERATION FOR DIFFERENT LANDS

• Land with return frontage :- Give positive allowance depending on the importance of road on which return frontage.

• Land with irregular shape :- Carve out regular shape by drawing perpendiculars to road and give negative allowance to remaining land.

CONTRACTOR’S METHOD OR CAPITAL VALUE METHOD.

• USED IN ASSESSMENT IN CASE OF PROPERTIES NOT USUALLY SOLD, NOT INTENDED TO BE SOLD OR EVEN INCAPABLE OF BEING SOLD IN OPEN MARKET.

• PROPERTIES CLASSIFIED INTO THREE GROUPS:-

• 1] PUBLIC PROPERTIES –MUSEUMS,SCHOOLS,COLLEGS,LIBRARIES.

• 2] PROPERTIES HAVING POTENTIAL FOR PROFIT – STADIUMS,• THEATRES,MUSIC HALLS,RACE COURSE ETC.

• 3] PROPERTIES OF PUBLIC UTILITY UNDERTAKINGS – e.g. RAILWAYS • WATER WORKS,ELECTRICITY UNDERTAKINGS,DOCKETS ETC.

CONTRACTOR’S METHOD

• METHOD

• 1] ESTIMATE VALUE OF LAND IN ITS EXISTING USE.

• 2] ESTIMATE COST OF CONSTRUCTION OF BUILDING.

• 3] ALLOW FOR DEPRECIATION ON ACCOUNT OF AGE,OBSOLESANCE ETC.

• 4] CAPITAL VALUE = LAND VALUE PLUS DEPRECIATED COST OF BUILDING


• Methods to determine replacement cost of building:-

1. Plinth area rate.

2. Cubical content rate.

3. Item-rate.

Contractor’s MethodDepreciation

• Depreciation is calculated for period of present life with due consideration to its future life and total life.

• Methods:-1. Straight-line Method – Allocates depreciation uniformly

throughout its service life Depreciation=original cost – salvage value Total life2. Declining balance Method – Fixed % of unit cost at the

beginning of the year is allowed to be deducted at the end of year annually.


3. Sinking Fund Method –

Depreciation=1-Y.P. future life at certain %

Y.P. full life at same %

Presumes normal and regular maintenance and repairs. If neglected, more allowance should be made, depending on the state of maintenance and repairs.


• Approximate life span:-

1. R.C.C. framed Structure 75-90 years

2. R.C.C. Brick built 60-65 years

3. C.G.I.Sheet+BBMasonary 50-60 years

4. A.C.C.Sheet+BBMasonary 40-50 years

5. Country Tiled + bricks 20-30 years

6. Temporary sheds 10-20 years


• Value of site Rs. 50,000

• Cost of replacement of

• building Rs.6,00,000

• Less Depreciation and

obsolescence[25%] Rs.1,50,000

• Depreciated cost of building Rs.4,50,000

• Property Value Rs.5,00,000

Weakness of Contractor’s Method

• No direct co-relation between cost of property and Market value, which depends on forces of supply and demand.

• Requires assumptions relative to unit costs. More probability of assumption being wrong.

• Requires assumptions as to original economic life and/or remaining economic life. Greater probability of assumptions being in error.

PROFIT METHOD

• PROFITS MADE BY AN OCCUPIER DETERMINES THE RENT A TENANT WOULD BE WILLING TO PAY FOR HIRING THE PREMISES.

• METHOD• 1] ESTIMATE THE GROSS AVERAGE RECEIPTS OF THE OCCUPIER.

• 2] DEDUCT THE EXPENSES INCURRED FOR EARNING THOSE

• RECEIPTS.

• 3] DEDUCT THE TENANT’S SHARE OF REASONABLE PROFITS,WHICH

• INCLUDE INTEREST ON HIS CAPITAL, REMUNERATION OF HIS

• SERVICES AND COMPENSATION FOR HIS RISK.

• 4] THE RESIDUE WILL BE THE LANDLORD’S SHARE OF RENT.

• NOTE: BEAR IN MIND THAT WHAT IS ASSESSIBLE IS THE

• PROPERTY AND NOT THE TRADE.

PROFIT METHOD

• Gross earnings Rs.12,00,000• Less purchase of grocery Rs. 6,40,000• Gross Profit Rs. 5,60,000• Less • working expenses, wages Rs. 2,80,000• Advertising and postage Rs. 58,000• Electricity and gas Rs. 82,000• Other expenses Rs. 30,000• Net profit Rs. 1,50,000 • Less Tenant’s share Rs. 75,000• Balance [Rent/Annum] Rs. 75,000

RESIDUAL METHOD

• This method is used to value property with Development potential.

• Development potential is also called “Latent Value”.

• Increased value of property after carrying out development will be more than expenditure incurred.

RESIDUAL METHOD

• Assess optimum development for the property. Estimate gross Development value [A].

• Assess cost of development [B].

• Assess Developers risk and Profit [C].

• Residual Value= [A] – {[B] +[C]}.

RESIDUAL METHOD

• Cost of development will include:-

1.Building costs

2.Architects fees [% of cost of development]

3.Engineers fees

4.Other professional fees [% of proceeds of sell]

5.Advertising and legal fees

RESIDUAL METHOD

• Gross development value Rs.3,20,000• Less• Cost of material and wages Rs. 75,000• Architect’s fees Rs. 10,000• Engineer’s fees Rs. 10,000• Other expenses Rs. 50,000• Developers Profit Rs. 32,000• Residual Value Rs.1,43,000

RESIDUAL METHOD

• Cost of each item of infrastructure is estimated as also allowances made for each relevant factor which are deducted from sale value of small plots, carved out from larger plot.

RESIDUAL METHODFLAT RATE TECHNIQUE

• Flat Rate deductions are made to account for two factors namely, area of land needed for infrastructure and its cost.

RESIDUAL METHODFLAT RATE TECHNIQUE

• Land under valuation 40,000 S.M.

• Comparables show

value of small plots Rs.2,000/S.M.

• Adjusted comparable

• small plot value @70 % Rs.1,400/S.M.

• Value of Land = 40,000 * 1,400

= Rs. 5,60,00,000

SOME EXPERIENCES

• IT WOULD BE INTERESTING TO SEE WHAT HAS BEEN DONE IN VARIOUS STATES

• AHAMADABAD - GUJRAT• BAGALORE - KARNATAKA• HYDERABAD -ANDHRA PRADESH • PATNA - BIHAR• PUNE PATTERN - MAHARASHTRA

BANGALORE EXPERIENCE

• THE BANGALORE MUNICIPAL CORPORATION HAS INTRODUCED VOLUNTARY SELF ASSESSMENT SYSTEM.

• BANGALORE HAS BEEN DIVIDED INTO SIX ZONES BASED ON STAMP DUTY VALUATIONS

• PROPERTY IS TO BE VALUED BASED ON USE, TYPE OF BUILDING,TYPE OF OCCUPANCY

• CEILING ON INCREASE OF PROPERTY TAX OF 250% OVER LAST YEAR

AHAMADABAD MODEL

• GUJRAT HIGH COURT HELD THAT THE CONTRACTUAL RENT WOULD BE THE ANNUAL RENT AFTER APRIL 1,1984.

• AHMEDABAD MUNICIPAL CORPORATION TOOK DRASTIC MEASURES TO CHECK PROPERTY TAX EVASION SUCH AS DISCONNECTION OF WATER SUPPLY AND DRAINAGE AS WELL AS ISSUANCE OF WARRENTS UPON NON-PAYMENT OF PROPERTY TAX.

PATNA SYSTEM• PATNA HAS SIMPLE AND OBJECTIVE BASED

PROPERTY TAX ASSESSMENT SYSTEM• CITY WAS DIVIDED INTO THREE

ADMINISTRATIVE UNITS• AS FIRST STEP, THE REASSESSMENT WAS

FOCUSED ON AN AREA OF PRIMARILY POSH COMMERCIAL AND RESIDENTIAL UNITS

• THIS COVERED ONLY 1/27TH OF THE AREA OF CITY, BUT GENERATED OVER 50% OF THE TOTAL TAX REVENUE.

HYDERABAD METHOD• ADOPTED AREA-BASED SYSTEM, BUT ITS APPLICATION

STAYED BY HIGH COURT• THE HOUSE NUMBERING CELL OF THE HYDERABAD

MUNICIPAL CORPORATION HAS GIVEN NEW NUMBERS TO ALL PROPERTIES IN THE CITY, WHICH HAS HELPED IN IDENTIFYING PROPERTIES NOT COVERED BY THE TAX SYSTEM

• ANOTHER IMPORTANT STEP TAKEN WAS COMPUTERISATION OF RECORDS AND ISSUANCE OF COMPUTERISED BILLS

• INTRODUCTION OF TAX COLLECTION THROUGH BANK BRANCHES

• WEEKLY REVIEWS OF COLLECTIONS

PUNE PATTERN

• BASED ON THE LAND VALUES GIVEN IN THE READY-RECKONERS FOR STAMP DUTY, CITY AREA HAS BEEN DIVIDED INTO ZONES

• SHRI RATHI’S PROPOSAL IS BEING CONSIDERED BY THE STATE GOVERNMENT

PANAJI PROPOSAL

• PRESENT SYSTEM IS BASED ON CAPITAL VALUE

• LAND VALUE IS IGNORED. TAX BASED ON ONLY BUILDING VALUE

• ALL INDIA INSTITUTE OF LOCAL SELF GOVERNMENT APPOINTED AS CONSULTANTS TO GOVT. OF GOA

• THE WORK IS IN PROGRESS

METHODS OF VALUATION

• 1] THE DIRECT COMPARISON OR

• COMPARATIVE METHOD.

• 2] THE CONTRACTOR’S METHD.

• 3] THE PROFITS OR ACCOUNTS

• METHOD.

COMPARATIVE METHOD

• FIND OUT RENT ACTUALLY PAID FOR OTHER SIMILAR PROPERTIES IN THE SAME LOCALITY, THREE TO FIVE YEARS PRIOR TO THE DATE OF VALUATION.

• FACTORS TO BE TAKEN INTO CONSIDERATION.• 1] LOCATION OF PROPERTY.• 2] SITUATION.• 3] LEVEL OF AMENITIES & FACILITIES.• 4] USER OF PROPERTY.• 5] AGE OF PROPERTY.• 6] CONDITION OF PROPERTY.• 7] FACILITES AVAILABLE IN THE PROPERTY.• 8] SIZE (FLOOR AREA) OF PROPERTY.

The Evidence

The Market

Should be based on

Transactions of similar properties

IN the same area

Obtained from

Recent Records

Comparative Valuation

Should be fairly stable

Underlying economic factors should be studied

of Frequent transactions

The evidence

Rent of similar properties COMPARATIVE

VALUATION

In the same area

Recent Rentals Frequent Rentals

The Market

Should beFairly stable

UnderlyingEconomic

Factors shouldBe studied

COMPARATIVE METHOD

CONTRACTOR’S METHOD OR CAPITAL VALUE METHOD

• USED IN ASSESSMENT IN CASE OF PROPERTIES NOT USUALLY RENTED, NOT INTENDED TO BE RENTED OR EVEN INCAPABLE OF BEING RENTED IN OPEN MARKET.

• PROPERTIES CLASSIFIED INTO THREE GROUPS:-

• 1] PUBLIC PROPERTIES –MUSEUMS,SCHOOLS,COLLEGS,LIBRARIES.

• 2] PROPERTIES HAVING POTENTIAL FOR PROFIT – STADIUMS,• THEATRES,MUSIC HALLS,RACE COURSE ETC.

• 3] PROPERTIES OF PUBLIC UTILITY UNDERTAKINGS – e.g. RAILWAYS • WATER WORKS,ELECTRICITY UNDERTAKINGS,DOCKETS ETC.


• METHOD

• 1] ESTIMATE VALUE OF LAND IN ITS EXISTING USE.

• 2] ESTIMATE COST OF CONSTRUCTION OF BUILDING.

• 3] ALLOW FOR DEPRECIATION ON ACCOUNT OF AGE,OBSOLESANCE ETC.

• 4] RENT = % OFLAND VALUE PLUS % OF DEPRECIATED COST OF BUILDING


• Methods to determine replacement cost of building:-

1. Plinth area rate.

2. Cubical content rate.

3. Item-rate.


• Depreciation is calculated for period of present life with due consideration to its future life and total life.

• Methods:-1. Straight-line Method – Allocates depreciation uniformly

throughout its service life Depreciation=original cost – salvage value Total life2. Declining balance Method – Fixed % of unit cost at the

beginning of the year is allowed to be deducted at the end of year annually.


3. Sinking Fund Method –

Depreciation=1-Y.P. future life at certain %

Y.P. full life at same %

Presumes normal and regular maintenance and repairs. If neglected, more allowance should be made, depending on the state of maintenance and repairs.


• Approximate life span:-

1. R.C.C. framed Structure 75-90 years

2. R.C.C. Brick built 60-65 years

3. C.G.I.Sheet+BBMasonary 50-60 years

4. A.C.C.Sheet+BBMasonary 40-50 years

5. Country Tiled + bricks 20-30 years

6. Temporary sheds 10-20 years

CONTRACTOR’S METHOD• Value of site Rs. 50,000

• Cost of replacement of

• building Rs.6,00,000

• Less Depreciation and

obsolescence[25%] Rs.1,50,000

• Depreciated cost of building Rs.4,50,000

• Rent = 5% of Land Value +

• 6% of Bldg. Value = Rs. 2950 P.A.

PROFIT METHOD• PROFITS MADE BY AN OCCUPIER DETERMINES THE RENT A TENANT

WOULD BE WILLING TO PAY FOR HIRING THE PREMISES.

• METHOD• 1] ESTIMATE THE GROSS AVERAGE RECEIPTS OF THE OCCUPIER.

• 2] DEDUCT THE EXPENSES INCURRED FOR EARNING THOSE

• RECEIPTS.

• 3] DEDUCT THE TENANT’S SHARE OF REASONABLE PROFITS,

• INTEREST ON HIS CAPITAL AND BORROWINGS, REMUNERATION

• OF HIS SERVICES AND COMPENSATION FOR HIS RISK.

• 4] THE RESIDUE WILL BE THE LANDLORD’S SHARE OF RENT.

• NOTE: BEAR IN MIND THAT WHAT IS ASSESSIBLE IS THE

• PROPERTY AND NOT THE TRADE.

PROFIT METHOD

• Gross earnings Rs.12,00,000• Less purchase of grocery Rs. 6,40,000• Gross Profit Rs. 5,60,000• Less • working expenses, wages Rs. 2,80,000• Advertising and postage Rs. 58,000• Electricity and gas Rs. 82,000• Other expenses Rs. 30,000• Net profit Rs. 1,50,000 • Less Tenant’s share Rs. 75,000• Rent [ Balance] Rs. 75,000

FUTURE TREND

• THE PROPERTY TAX BE BASED ON CAPITAL VALUE INSTEAD OF RENTAL VALUE.

• THIS WAY THE PROPERTY TAX ASSESSMENT HAS BEEN DISSOCIATED WITH THE PROVISIONS OF RENT CONTROL ACT.

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