Kerala government dilutes tax hike for luxury homes

THIRUVANANTHAPURAM: With state cabinet approving the recommendation of the sixth state finance commission (SFC) to impose higher tax on houses with a plinth area of over 3000 sq ft, such houses will now be taxed under the classification of luxury houses and taxed at rates higher than property tax.

While SFC proposed a hike of 50-200% tax, based on area of the house (ranging between 3000 sq ft and 10,000 sq ft and those above), government has revised the recommendation drastically and plans to levy 15% tax for all houses with plinth area over 3000 sq ft.

SFC had proposed these slabs for luxury houses constructed after January 14, 2011 and government revised this timeline and proposed to levy additional tax on luxury houses constructed after April 1, 2022. Revenue department already collects a one-time luxury tax for new constructions with a plinth area over 278.7 sq m and the rate starts at Rs 4,000.

Sources said SFC suggested that the one-time tax be paid to local bodies instead of the department, but LSGD refused this recommendation. The office of LSG minister clarified that the 15% additional tax will be levied but the department was not keen on categorizing houses over 3,000 sq ft as luxury homes.

SFC, in its second report, cited an absence of buoyancy in local bodies for revenue mobilization and recommended changes to spruce up revenue collection. The cabinet approved one of them i.e. to do away with exemptions.

This means that annual tax hike will be applicable to residential buildings up to 2,000 sq ft. These buildings are now exempted from an increase and the decision to limit the increase in tax to 25% to those residential buildings having over 2,000 sq ft and 100% for commercial buildings has also been done away with. SFC termed such exemption untenable in the face of law.

Regarding the lower slab for tax assessment, the government diluted the original recommendation of the state finance commission. The commission had proposed that all homes of and above 30 sq m should be brought under property tax net and that for houses with 30 sq m to 50 sq m plinth area, property tax may be collected at half of the rates for other buildings. The cabinet revised this recommendation by bringing houses over 50 sq m under the tax slab.

It remains to be seen how local bodies step up in implementing annual hike in property tax. Even the mandatory tax revision proposed every five years has not been fully implemented in local bodies.