Property tax in Jammu and Kashmir: Why it has been proposed, and how it will work

Jammu and Srinagar have municipal corporations. There are 19 municipal councils and 57 municipal committees in the UT.

Has property tax been introduced in J&K for the first time?

No. Until 2002, the Sales Tax Department of the erstwhile state of J&K levied a tax on the income of landlords — such as rent — in urban areas. However, it did not share the proceeds with the urban local bodies.

This property tax was levied under the Jammu and Kashmir Urban Immovable Property Tax Rules, 1962. The tax was calculated on the basis of surveys that were carried out by the assessing authority every five years. In 1997, the last year that the survey was done, tax was levied on individual property owners with a minimum rental income of Rs 500 per month. The tax was payable every quarter, and a penalty was levied for delays in payment.

So why did the government stop collecting this tax?

It was unviable — according to officials, the cost of collecting the tax was more than the revenue that was generated. Also, most property owners challenged the assessment, and the process was bogged down by endless litigation, the officials said.

Who will pay the tax now, and from when?

The UT administration has notified rules for the proposed property tax in the exercise of powers under Section 71A of the Jammu and Kashmir Municipal Act, 2000, read with Sections 65(1) and 73(1) of the Act. In October 2020, the Union Home Ministry had authorised the administration to levy the tax.

The tax is proposed to be levied on people having property within the territorial jurisdiction of urban local bodies across J&K with effect from April 1. However, not every property owner will pay.

According to the administration, houses with area smaller than 1,000 sq ft — which make up 40 per cent of the total — will be exempt. Of the remaining houses, almost 80 per cent will pay less than Rs 600 a year — according to the administration, people in Shimla, Ambala, and Dehradun pay 10 times this amount.

Also, almost 46,000 of the 1.01 lakh shops in urban areas are smaller than 100 sq ft in area. Eighty per cent of these shops will pay a meagre Rs 600 a year — or Rs 50 per month. The rest will pay up to Rs 700 a year.

According to the administration, around 30,000 shops will pay less than Rs 2,000 in annual property tax, and 20,000 of these shops will pay less than Rs 1,500 — which again, is a tenth of what shop owners in Shimla, Ambala, and Dehradun pay.

What is the formula for calculating tax?

The property tax will amount to 5 per cent of the Taxable Annual Value (TAV) in case of a residential property, and 6 per cent of TAV in case of a non-residential property.

The TAV will be decided based on factors like the type of municipality, the land value rate notified by the government, floor, area, usage, age of property, slab, other usage type, and occupancy.

What is the history of urban local bodies in J&K?

In the late nineteenth century, the Dogra ruler of the erstwhile princely state established a municipal committee each for the cities of Srinagar and Jammu, to look after their civic affairs under the J&K Municipal Act No. 16 of 1886.

The municipal committees were upgraded to municipal councils in 1956. Then, in 2003, the legislature of the erstwhile state passed a law to upgrade them to municipal corporations. Today’s municipal committees and municipal councils were set up as town area committees and notified area committees in the erstwhile state from time to time.

The municipal committees of Jammu and Srinagar cities levied octroi on goods entering their areas, while the town and notified areas committees collected dharat. To remove the inconvenience caused to the public by the collection centres at various places, the state government abolished octroi and dharat in the mid-1980s. Instead, a toll tax was collected at Lakhanpur in Kathua district on the border with Punjab. The proceeds were to be distributed among the urban local bodies in proportion to their income from octroi and dharat, but this decision was never implemented on the ground.

Even though the GST regime was introduced in 2017, the state government continued to collect the toll tax from goods carriers at Lakhanpur in view of J&K’s special status under Article 370. The practice came to an end in January 2020 following the constitutional changes of August 5, 2019, including the abrogation of Article 370.