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Published By (Various sources), Date (26 Jun 2023)

In 2009, the BMC had modified its existing property tax system and switched the calculation method from ‘rateable value’ to ‘capital value’ of the land, a complicated formula involving pre-1940 level low standard rent. In 2019, the Bombay High Court held that the amendment was valid but quashed three of its rules (20-22) as invalid. Rule 20 said that ‘capital value’ would rely on the buildable potential of the land.



The Hon'ble Supreme Court (SC) has, by a recent order, settled a long standing dispute between property owners and developers in Mumbai and Municipal Corporation of Greater Mumbai (MCGM), in relation to the power and entitlement of MCGM to levy property tax based on capital value (CV) system as against the prevalent rateable value (RV) system. 

What is Property Tax


In Greater Mumbai, MCGM levies municipal taxes including property tax on lands and buildings under the provisions of Mumbai Municipal Corporation Act, 1882 (Act). Property tax essentially includes water tax, water benefit tax, sewerage tax, sewerage benefit tax, general tax, education cess, street tax and betterment charges.


Earlier Method - RV Based Taxation System

Prior to April 2010, property tax was levied basis RV of property which was computed based on the gross annual rent at which the property is actually let out, or if not let out, the ground rent at which it may reasonably be expected to let from year to year, less a statutory allowance towards repairs and maintenance, in case of a building only.


Present Method - CV Based Taxation System

Under CV based taxation system, property tax is computed based on the market value / ready reckoner (RR) value and various other factors associated with the property as against the rental value, as was computed and levied by MCGM prior to April 2010.


On 13 April 2009, Government of Maharashtra (GoM) proposed to amend the Act with effect from 1 April 2010 by introducing Section 154(1A) and Section 154(1B) and Section 154A thereby, empowering the Municipal Commissioner of MCGM to fix CV of land and building and levy property tax from 1 April 2010 based on CV of property instead of RV of the property by considering the following factors: 

  • market value/RR of the property,
  • nature and type of property,
  • area of the property,
  • user category i.e., residential, commercial, offices, etc.,
  • age and floors of the building, and
  • other facts as may be specified by MCGM by the rules to be framed by MCGM.
  • In order to derive a uniform formulae for computation of CV, MCGM framed rules, known as 'Factors and Categories of Users of Buildings or Lands (Assignment of Weightage by Multiplication) Fixation of Capital Value Rules, 2010' (CV Rules of 2010) which were brought into force with effect from 20 March 2012 and thereafter, framed another rules being 'Factors and Categories of Users of Buildings or Lands (Assignment of Weightages by Multiplication) Fixation of Capital Value Rules, 2015' (CV Rules of 2015) which were brought into force with effect from 1 April 2015.
  • Section 154A of the Act further allowed MCGM to provisionally fix CV for the official year 2009-2010, and such provisional CV shall be deemed to be the CV in respect of the official years 2010-2011, 2011-2012 and 2012-2013, pending fixing the CV, and to issue bills for property taxes accordingly.


Challenges raised by Property Owners' Associations


Until the formulae prescribed under CV Rules of 2010 was in the process of being implemented, MCGM was empowered to continue to levy property tax based on RV and thus continued to issue provisional property tax bills computed on the basis of RV. Pursuant to new regime coming into force on 20 March 2012, final bills based on final assessment and special assessment (Impugned Bills) as per CV were issued by MCGM for the total tax leviable and the difference between the property tax based on RV system on and from 1 April 2010 till March 2012 were to be settled /accounted in the subsequent property tax bills.


Several petitions were filed and tagged together with the petition filed by Property Owner's Associations before the Hon'ble High Court of Judicature at Bombay (HC) challenging inter alia (i) the validity of computation and levy of property tax based on CV system, (ii) vires of CV Rules of 2010 and CV Rules of 2015, (iii) amendment effected to the Act, (iv) retrospective applicability of CV Rules of 2010, and (v) exploitation of future potential / floor space index (FSI) while determining CV of any land.


Bombay High Court Decision

The Division Bench of HC, vide an order dated 24 April 2019 (HC Order), although upheld the constitutional validity of the amendments made to the Act along with the validity of computation and levy of property tax based on CV system, it, however, held that CV Rules of 2010 shall apply prospectively from 20 March 2012 and not from 1 April 2010.


HC also held the following rules as ultra vires the provisions of Section 154 (1A) and Section 154(1B) of the Act  -

  • Rule 20 which dealt with valuation of open land capable of utilizing more than 1.0 FSI or transfer of development right taking into consideration the potential of construction on the vacant land for valuation  (Rule 20),
  • Rule 21 which laid down the formula for calculation of CV of open land or building or part thereof and provided for multiplication to the base value on the basis of the carpet area of the land by permissible or approved FSI (Rule 21), and
  • Rule 22 which gave an overriding effect to CV rules over stamp duty ready reckoner (SDRR) (Rule 22).
  • Subsequently, HC directed that the Impugned Bills issued by MCGM be struck down and, consequently, fresh special assessment notices be issued after fixing CV afresh in accordance with Section 154 (1A) of the Act.
  • Being aggrieved by decision of Division Bench of HC, MCGM approached the SC by filing a Special Leave Petition.
  • SC, by its Order dated 7 November 2022 (SC Order), upheld the HC Order and held that Rules 20, 21 and 22 of CV Rules of 2010 and 2015 are ultra vires. SC further observed that while determining CV of any property, only the present physical attributes and status of land and building can be considered and not future prospects or FSI of the land.
  • On retrospective applicability of CV Rules of 2010, SC observed that the rule making powers, in any view of the matter, could not have created a liability pertaining to the period prior to the Rules coming into effect i.e., before 20 March 2012. Further, as  the statutory provisions under the Act do not contemplate any likelihood of exploitation of capacity in future, CV of the land and building must be based on the situation "in praesenti" and not on the likelihood of user or exploitation of the asset "in futuro", especially when none of the factors delineated in Section 154(1A) of the Act, speaks of future prospects or such likelihood.

·         Matter reaches SC


Review Petition before SC

MCGM, thereafter, filed a review petition against the SC Order, which was rejected by SC on 14 March 2023. Thus, although HC and SC upheld the constitutional validity of the amendments made to the Act, which empowered MCGM to levy property tax based on CV system, courts have:

  • struck down the powers of MCGM to levy such taxes retrospectively i.e., for the period from April 2010 till 20 March 2012, and
  • confirmed that MCGM is not permitted to compute CV of a land by taking into consideration future development potential / FSI of the land.



The implementation of CV system, will curb the disparity and bring in uniformity in the rates of property taxes applicable to each type of land and building across Mumbai. For instance, under the earlier system, residents of South Mumbai paid substantially lower amount of property tax as various buildings were last assessed prior to 1940, when rents were quite low. On the other hand, higher taxes were paid by residents in suburbs and extended suburbs where buildings were constructed after 1960 and rentals were comparatively much higher. Further, dismissal of the review petition has brought a sigh of relief amongst various developers and landowners across Mumbai who feared levy of property taxes by MCGM basis the future potential / FSI of the land and also levying the same retrospectively from 1 April 2010 onwards.


The Brihanmumbai Municipal Corporation (BMC) will have to rework the capital value of all properties in Mumbai and refund citizens who have paid property tax for 2010 to 2012 as per the Capital Valuation System, following the Supreme Court’s rejection of its review petition.


The Supreme Court upholds the decision ordering the BMC to refund additional property taxes.


April 2023: The Supreme Court of India recently denied BMC's review petition appealing the Bombay High Court's decision to create new property tax regulations and bills. The Brihanmumbai Municipal Corporation (BMC) will now have to reassess the capital value of Mumbai homes and reimburse the difference to property taxpayers.


The allegation stemmed from a case filed in the Bombay High Court by the Property Owners Association contesting the constitutional validity of the Mumbai Municipal Corporation Act 1988 on levying property tax.


Based on the petition, the HC ruled that the BMC must do the evaluation using the Capital Value System prospectively, beginning in 2012 and ending when the rule was enacted, rather than retrospectively. The BMC was instructed to review the property capital values. The order further said that unoccupied land should be assessed using the FSI of 1 rather than the potential FSI. 


The formula below is used to compute the MCGM property tax in Mumbai -

Capital Value * Tax Rate = Property Tax

Capital value = Market value of the property multiplied by total carpet area multiplied by weight for construction type multiplied by weight for age of the building. 

The market value is calculated using the ready reckoner, which is set by the state government


Weights For ‘Construction Type’:

Bungalows and RCC construction

1 Unit

Other than RCC (semi-permanent /chawls)

0.60 Units

Under-construction or vacant land

0.50 Units

Weights For ‘Age Of Building’:

Properties constructed before 1945

0.80 units

Properties constructed between 1945 and 1985

0.90 Units

Properties constructed after 1985

1 Unit


By entering the Ward, Zone, Sub Zone, and other parameters, the MCMG tax calculator can determine the property tax.


The MMC Act authorizes the Municipal Corporation of Greater Mumbai (the Corporation) to   impose property tax on lands and buildings and property tax is one of the main sources of revenue for the Corporation. The MMC Act earlier provided for levy of property tax on the basis of certain percentage of ratable value of the buildings or lands. The basis of determination of ratable value was the annual rent for which such buildings or lands might reasonably be expected to be let from year to year. However, in 2009, the MMC Act was amended, thereby empowering the Corporation to levy property tax on the basis of capital value as an alternative to the earlier method of levying property tax on the basis of rateable value. The MMC Act was, thereafter, amended by successive amendments as a result of which newly introduced Section 154(1A) and (1B) now authorizes Municipal Commissioner to fix the Capital Value of land and building with the approval of the Standing Committee. The Capital Value Rules of 2010 and Capital Value Rules of 2015 also came into force. Consequently, a number of petitions were filed challenging the validity of computation and levy of property tax based on capital value system. The Bombay High Court, however, rejected the challenge as to the validity of various provisions of the MMC Act....

Supreme Court’s Analysis On absence of recommendations by the Finance Commission in relation to measures needed to improve the financial position of the municipalities While it is true that certain functions are entrusted to the Finance Commission and the recommendations made by the Finance Commission must carry great weightage, it is the Legislature of the State which will ultimately take an appropriate action with respect to the recommendations made by the Finance Commission and the papers placed before it as Sub-Article (2) contemplates that the recommendations made by the Finance Commission along with the explanatory memorandum as to the action taken thereon must be laid before the Legislature of the State. “If the Legislature itself has taken into account certain prevailing situation, which according to the Legislature is causing some prejudice to the financial health and condition of the municipalities and, therefore, the method of imposition of property tax ought to be changed, it cannot then be said that the matter must necessarily and ought to have emanated from the Finance Commission or that in the absence of such recommendations by the Finance Commission, no steps could have been taken by the Legislature.” Article 243X of the Constitution states that the Legislature of a State may by law authorize a municipality to levy, collect and appropriate such taxes etc. in accordance with such procedure and subject to such limits as may be specified in law. Hence, the exercise undertaken by the Legislature in the instant case is completely consistent with the empowerment relatable to Article 243X of the Constitution and does not in any way go counter to said empowerment....

On the change the methodology of computation and levy of property tax based on capital value system : Sections 123 to 128 of the MMC Act deal with accounts and annual budget estimates. With the fixed parameters and scope of taxation, as well as, the elements that can be covered by levy of such taxes, depending upon the annual budget estimates, the rates of municipal taxes, fares and charges can certainly be fixed in terms of Section 128 of the MMC Act. In such cases, the width of the tax regime is already decided and the rates of taxes would be dependent upon the annual estimates. However, after the amendment in question, instead of rateable value, the property tax can now be levied going by the capital value which was not possible through the process of annual estimates and in terms of Sections 120, 123, 125 and 128 of the MMC Act. All that could be done under these provisions would be to vary or change the rates and not the very basis of taxation Section 154 deals with how rateable value and capital value are to be determined. Sub-section (1) deals with rateable value while sub-section (1A), (1B) and (1C) deal with capital value. The factors on the basis of which capital value can be arrived at are delineated in sub-clauses (a) to (e) of sub-section (1A) of Section 154.  While sub-clause (a) to (d) are clear and well defined, sub-clause (e) refers to the factors as may be specified by rules under subsection (1B) which in turn authorizes the Commissioner, to frame such rules, with the approval of the Standing Committee as respects details of categories of building or land and the weightage by multiplication to be assigned to various such factors and categories for the purpose of fixing the capital value.


Section 154 (1A) – Sub clauses (a) to (d) Clauses (a) to (d) are physical features or attributes of the land or building which are in existence when the value is to be reckoned. In essence, these attributes are situations “in praesenti”. The buildable potential of the land in future is not an attribute “in praesenti” but is in the nature of   likelihood of user or exploitation of the asset “in futuro”.  However, after the amendments, the emphasis has now changed and the basis for taxation is now to be capital value of land and building. Capital value can have two dimensions: First, the value of land or building as it stands today or secondly, the value as may be in future as per anticipated development. However, the legislative intent, as is clear from clauses (a) to (d), is about actual status and user as on the date the capital value is to be reckoned or considered. These clauses clearly show that the features contemplated therein must be in existence as on such date and not what would be the projection in future.

Section 154 (1A) –Sub-clause (e) The said clause can either be read ejusdem generis along with sub-clauses (a) to (d), in which event the scope of any rules to be made in terms of power granted by sub-clause (e) read with sub-Section  (1B), would be relatable to the factors actually in existence and not as something contemplated in future. However, if the clause is read independently, there is nothing in clause (e) or in the language of sub-Section (1B) that the future prospects of the land in question could be reckoned or noted for arriving at the capital value. Hence, it is quite clear that the width of clauses (a) to (e) read with sub-Section (1B) do not by any stretch of imagination contemplate taking into account the future prospects of the land in question. [Municipal Corporation of Greater Bombay v. Property Owner’s Association, 2022 SCC OnLine SC 1542, decided on 07.11.2022].


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