Introduction: Bangalore, the pulsating heart of India's IT industry, has long been a magnet for young professionals drawn to its technological prowess and cultural diversity. However, the city's rapid urbanization in recent years has given rise to a concerning trend – a surge in apartment rents. This phenomenon is further aggravated by the proposed property taxation changes by the Bruhat Bengaluru Mahanagara Palike (BBMP), adding a layer of complexity to an already intricate housing scenario. Brigade Calista one of the best residential project to invest in Bangalore
The Unveiling of the New Taxation Scheme: As per a leading real estate consultancy, 2023 is expected to witness a staggering 30% increase in apartment rents. Various factors contribute to this surge, from a burgeoning population to limited housing inventory in prime locations. Adding fuel to the fire is the controversial move by BBMP to introduce a guidance-based taxation framework, shifting from the traditional zonal classification system.
Under the proposed system, property tax calculations will transition from zonal classification to a combination of plot size and total built-up area. The computation involves assigning a percentage of the guidance value to the property type, coupled with a percentage of the construction cost subjected to an annual depreciation of 3%, capped at 60%.
Understanding the Guidance Value: Before delving into the implications, it's essential to grasp the concept of guidance value. This is the minimum price of real estate assets determined by the government to prevent undervaluation, influencing stamp duty, registration fees, and taxes. In contrast, market value fluctuates based on market conditions, subject to macro and microeconomic factors and external variables.
Concerns and Controversies: The proposed changes have triggered a wave of concerns, particularly regarding the potential impact on rental properties. Owners of rental properties may face double the tax compared to those with self-occupied residences, sparking fears of further escalating rents. This comes on the heels of a significant increase in guidance value in the previous year, intensifying the existing rental crisis.
Furthermore, the outskirts of Silicon City, once considered more affordable, have witnessed guidance values surpassing market prices due to the 2022 hike. The new taxation framework threatens to exacerbate this situation, leaving property owners with a higher tax burden on their rental properties.
Inconsistencies in Tax Assessment: While BBMP asserts that the new framework aims to rationalize and simplify property tax calculations, concerns have been raised about the lack of assigned guidance values for three-fourths of the 90,000 streets under BBMP jurisdiction. This oversight opens the door to potential anomalies in tax assessments, particularly for apartment complexes without assigned values.
The Response of Karnataka Home Buyers Forum: Voicing the concerns of the middle class, the Karnataka Home Buyers Forum has written to the BBMP commissioner, highlighting the adverse effects the proposal may have. The potential twofold increase in property taxes for rental properties could exacerbate the rental crisis, leading to a shortage of affordable housing. The forum proposes calculating property taxes based on the actual carpet or usable area, aligning with RERA mandates for residential apartment sales.
Conclusion: Bangalore's dynamic landscape faces a critical juncture with the proposed changes in property taxation. While the aim is to streamline processes, the potential consequences, including a twofold increase in property tax for rental properties, could worsen the existing rental crisis. Striking a delicate balance between urban development and affordability is crucial, and policymakers must carefully navigate this challenging terrain for a sustainable future.