Tax waiver to make affordable housing attractive in Mumbai

By Investoxpert | 13 Dec 2023 | Real Estate

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The approval of Property Tax In Mumbai for homes up to 500 square feet in Mumbai is expected to increase demand for inexpensive housing in the area from both developers and prospective homeowners. It will not only increase demand for compact and affordable homes in the city, but it will also help first-time homebuyers, particularly those from lower socioeconomic classes.

What Is Property Tax?

The annual sum that a landowner pays to his local government or municipal organization is known as property tax. The property consists of his home, office building, and any tangible real estate that he has rented out to others.


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How Is Property Tax Calculated In Mumbai?

Mumbai property tax calculation formula is as follow: 


The property tax is computed using a fraction of the property's capital value. 


In this case, capital value = base value rate multiplied by The factors that affect a building's value include its age, usage, floor factor, total carpet area, and land acreage in the case of vacant land.


Why The Government Is Providing Property Tax Waiver In Mumbai?

The State's move to completely eliminate property tax on residential units up to 500 square feet is thought to have accelerated the industry's expansion by increasing sales velocity and benefiting about 15 lakh dwellings in the city. 


According to statistics, around 64% of the residential units under the Brihanmumbai Municipal Corporation's (BMC) authority are smaller than 500 square feet. 


In addition, the government has decided to lower the property tax by 60% for units that are between 501 and 700 square feet. This implies that about two lakh dwellings will also be eligible for a partial decrease in the overall tax rate.


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What Are The Benefits Of Property Tax Waiver?

Restoring demand to the real estate market has been the developers' largest obstacle during the past few years. Waiving property taxes is a wise decision because it may influence people's decisions to purchase real estate. 


Not only that, but there is also a good chance that the number of homes with smaller layouts—1 BHK, 1.5 BHK, or even 2 BHK—will decline dramatically. The move will significantly lessen the existing homeowners' monthly burden by enabling them to control their spending.


In a city like Mumbai, where real estate is exceedingly expensive, purchasers typically favor one-bedroom homes, both for purchase and for rental purposes. Even though the city has significantly improved its ranking among the top eight cities in terms of affordability since 2010, it is still one of the most costly markets in the country.


More than half of Mumbai residents who are seeking for housing say they prefer a one-bedroom apartment above other options, per a survey. The majority of these buyers are between the ages of 25 and 30, and because of their limited resources and the affordability of Equated Monthly Installments (EMI), they favor compact residential properties. 


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From When The Property Tax Waiver Rule Was Effective?

The property tax waiver, which is effective for all properties registered from January 1, 2019, along with the reduction of the GST rate from eight percent to one percent in the case of affordable housing, will undoubtedly help revive demand in the segment, as affordability is a major factor for investments by millennials.


In fact, the city authorities' decision to cancel property tax in Mumbai for homes under 500 square feet is a good step toward lessening the financial burden of home ownership. It is expected to generate a surge of confidence in the market and yield significant returns for middle-class and inexpensive property-owning tenants and landlords.


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What Is The Impact On BMC’s Revenue Generation?

One of the main ways that BMC generates cash is through property tax. Property tax revenue to the corporation is estimated to be close to Rs 5,000 crore a year, with homes with carpet areas under 700 square feet accounting for the majority of this amount. While everyone in the State welcomes the property tax relief, it is anticipated that this will lower the municipal corporation's planned earnings—especially because Octroi has already been included in the GST.


Nonetheless, divergent views indicate that the aforementioned effect would be insignificant, particularly in light of the 2010 transition of property taxation from the rateable value to the capital value system.


What Are The Mumbai Property Tax Relief Measures?

  • With immediate effect, residential flats within the Mumbai municipal area limits that have a carpet area of up to 500 square feet are 100% exempt from property tax payment.


  • Properties that are utilized for charitable endeavors or public worship.


  • A 60% discount will be applied to residential units with carpet areas between 500 and 700 square feet.


  • If you pay the half-yearly payment by June 30th, you will receive a 2% tax reduction. Alternatively, if you pay the second amount by June 30th, you'll get a 4% tax break. This exemption is exclusively granted to taxpayers with no unpaid balances.



Motivated by a BMC resolution from 2017 about property tax waivers, the action also aims to support citywide slum redevelopment programs, which will help the middle-class and chawl people. Even while the change has given the housing industry fresh vitality, there is still disagreement about the move's overall effects.


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