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Double Taxation - 21st March, 2008 Times Property (Times of India)

When other taxes have already been paid on a property, what business does the municipality have to tax rental income on it?

We all work hard for a living especially in a city like Mumbai where traffic and poor intra city connectivity takes a toll. Come March end and we all start worrying about paying our income tax and organising advance tax for the next financial year. Considering that we all have paid enormous amounts of money through indirect taxes throughout the year for goods and services obtained, one does feel the pinch when you have to pay Income tax which goes into the central Government booty.

Most of the new infrastructure initiatives are privatised, be it the Metro, airport modernisation, build operate and transfer (BOT) projects for roads, national highways etc too; so all other taxes, duties and levies collected by the state government has no accountability as usual. MMRDA is raking in monies through sale/auction of land and claim such monies will be deployed into metro projects etc whereas the private players, be it Reliance or GVK or any other, are the ones who pay for them.

The point I am trying to get to is; "PROPERTY TAX ON RENT' by the Municipal Corporation (BMC). I think it is 'ridiculous' that we even acknowledge such a tax, leave alone paying it. With hard-earned "tax paid' money we buy a property; at any given point we decide to rent it for a stable income stream, we are okay with paying 'Income Tax' because such "Income" gets clubbed with the rest of your earnings. But what business does the Municipality have on 'Rental earnings'? As an owner, the municipal property tax is paid for the property owned; now because one is earning rental income on it why and how does the municipality become a collection body for any tax? Let them battle it out with the Income tax department if they are so keen on a revenue stream accrued through rental properties. Why should one pay income tax and also to the Municipality on the same Income, it is nothing but 'double taxation' and exploitation!

Most rental transactions face this as a roadblock as to who should pay such tax. Now, both parties are paying their respective 'Income Tax'; the tenant pays rent with tax paid income but does get deduction benefits under expenses in final accounts, whereas, it is treated as income for the owner/landlord. Please bear in mind that the tenant has an additional burden of 12.36% while renting 'commercial property'. How many kinds of taxes can you build around one transaction? Income tax for owner? Municipal tax on rent accrued? Service tax in case of commercial properties?

All this gives rise to new finding to work around the system: 'Corruption and Bribery'.

The Everything is settled for a price. Even if your property is developed according to the municipal specifications the "Occupation certificate" costs a cool 'twenty five lakhs' or more as unaccounted processing charges to the developer. Similarly, Municipal taxes on rent are settled, of course, at a percentage of the savings or of the rentals depending on your luck. Only if all this unaccounted money actually went into the Municipality account 'Officially' there would be enough money to run the city and not the households of the socalled 'government servants'.

To avoid such taxes countries like UAE offer ample opportunities to make them the dream havens for folks looking to beat the system. Dubai has been wooing India's affluent by offering such investment options which offers them tax benefits and savings. If our government has any sense beyond looking at every which way to squeeze its citizens we would see higher investments into the Metro City and its surrounding Tier II and III towns and cities.

The sad part is that we can debate all we want, I can continue moaning and writing about such issues but until we take make a strong protest and put our foot down and refuse to pay such taxes or to be bullied by the government to pay double or more taxes on one transaction, no saint from the governing body is going to let go of an easy income stream especially in a city like Mumbai where the rentals and capital values are amongst the highest in the world!