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.

TYPES OF RENT (CONTD)

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.

TYPES OF RENT (CONTD)

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 RentRent
reasonably be expected from
hypothetical tenant.
Principle of communibus anisTake
things by average.(Average year)
Principle of rebus sic stantibus consider
circumstances prevailing at the time of
assessment (natural or due to Acts)

TYPES OF RENT (CONTD)

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 SUBTENANT

Proper basis of assessment Propertys
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
personemvalue of property unchanged
inspite of change in mode of use.

STANDARD RENT AND SUBTENANT(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

OBJECTIVES OF
PROPERTY TAX REFORMS
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

OBJECTIVES OF
PROPERTY TAX REFORMS
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 CONTRACTORS 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.

COMPARATIVE METHOD
The evidence
The
Evidence

The Market
Market
The

Should be based
on
Transactions
Transactions
ofof
similar
similar
properties
properties

Comparative
COMPARATIVE
Valuation
VALUATION

Should
Should be
be
fairly stable
stable
Fairly

thesame
samearea
area
InINthe
Obtained from
RecentRecords
Records
Recent

of

Frequent
Frequent
transactions
Transactions

Underlying
Underlying
economic
Economic
factorsshould
should
Factors
be
Bestudied
studied

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.

Belting Method
3rd Belt

Remaining

Value
Of 1st Belt

Recess Land
of Belt
Value

Recess Land
of Belt
Value

2nd Belt

1
X

1st Belt

R O A D

3/4th Value
Of 1st Belt

Full Value

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.

CONTRACTORS 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.

CONTRACTORS 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

CONTRACTORS METHOD

Methods to determine replacement cost of

building:1. Plinth area rate.
2. Cubical content rate.
3. Item-rate.

Contractors Method
Depreciation

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 life
2. Declining balance Method Fixed % of unit cost at the
beginning of the year is allowed to be deducted at the
end of year annually.

Contractors Method
Depreciation
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.

CONTRACTORS METHOD

1.
2.
3.
4.
5.
6.

Approximate life span:R.C.C. framed Structure

R.C.C. Brick built
C.G.I.Sheet+BBMasonary
A.C.C.Sheet+BBMasonary
Country Tiled + bricks
Temporary sheds

75-90 years
60-65 years
50-60 years
40-50 years
20-30 years
10-20 years

CONTRACTORS METHOD

Value of site
Cost of replacement of
building
Less Depreciation and
obsolescence[25%]
Depreciated cost of building
Property Value

Rs. 50,000
Rs.6,00,000
Rs.1,50,000
Rs.4,50,000
Rs.5,00,000

Weakness of Contractors 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 TENANTS 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 LANDLORDS SHARE OF RENT.
NOTE: BEAR IN MIND THAT WHAT IS ASSESSIBLE IS THE
PROPERTY AND NOT THE TRADE.

PROFIT METHOD

Gross earnings
Less purchase of grocery
Gross Profit
Less
working expenses, wages
Advertising and postage
Electricity and gas
Other expenses
Net profit
Less Tenants share
Balance [Rent/Annum]

Rs.12,00,000
Rs. 6,40,000
Rs. 5,60,000
Rs. 2,80,000
Rs. 58,000
Rs. 82,000
Rs. 30,000
Rs. 1,50,000
Rs. 75,000
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

Less
Cost of material and wages
Architects fees
Engineers fees
Other expenses
Developers Profit
Residual Value

Rs.3,20,000
Rs. 75,000
Rs. 10,000
Rs. 10,000
Rs. 50,000
Rs. 32,000
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 METHOD
FLAT RATE TECHNIQUE
Flat Rate deductions are made to account
for two factors namely, area of land needed
for infrastructure and its cost.

RESIDUAL METHOD
FLAT 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 RATHIS 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 CONTRACTORS 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.

COMPARATIVE METHOD
The evidence
The
Evidence

The Market
Market
The

Should be based
on
Transactions
of
Rent of similar
similar
properties
properties

Comparative
COMPARATIVE
Valuation
VALUATION

Should
Should be
be
fairly stable
stable
Fairly

Frequent
Frequent
transactions
Rentals

Underlying
Underlying
economic
Economic
factorsshould
should
Factors
be
Bestudied
studied

thesame
samearea
area
InINthe
Obtained from
RecentRentals
Records
Recent

of

CONTRACTORS 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.

CONTRACTORS 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] RENT = % OFLAND VALUE PLUS % OF
DEPRECIATED COST OF BUILDING

CONTRACTORS METHOD

Methods to determine replacement cost of

building:1. Plinth area rate.
2. Cubical content rate.
3. Item-rate.

Contractors Method
Depreciation

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 life
2. Declining balance Method Fixed % of unit cost at the
beginning of the year is allowed to be deducted at the
end of year annually.

Contractors Method
Depreciation
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.

CONTRACTORS METHOD

1.
2.
3.
4.
5.
6.

Approximate life span:R.C.C. framed Structure 75-90 years

R.C.C. Brick built
60-65 years
C.G.I.Sheet+BBMasonary 50-60 years
A.C.C.Sheet+BBMasonary 40-50 years
Country Tiled + bricks 20-30 years
Temporary sheds
10-20 years

CONTRACTORS METHOD

Value of site
Cost of replacement of
building
Less Depreciation and
obsolescence[25%]
Depreciated cost of building
Rent = 5% of Land Value +

6% of Bldg. Value =

Rs. 50,000
Rs.6,00,000
Rs.1,50,000
Rs.4,50,000
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 TENANTS 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 LANDLORDS SHARE OF RENT.
NOTE: BEAR IN MIND THAT WHAT IS ASSESSIBLE IS THE
PROPERTY AND NOT THE TRADE.

PROFIT METHOD

Gross earnings
Less purchase of grocery
Gross Profit
Less
working expenses, wages
Advertising and postage
Electricity and gas
Other expenses
Net profit
Less Tenants share
Rent [ Balance]

Rs.12,00,000
Rs. 6,40,000
Rs. 5,60,000
Rs. 2,80,000
Rs. 58,000
Rs. 82,000
Rs. 30,000
Rs. 1,50,000
Rs. 75,000
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.