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ULBS to Qualify for Finance Commission Grants From 2021-22 Onwards

15th Finance Commission (15th FC) in its Report for 2020-21 has recommended that for Urban Local Bodies (ULBs) to qualify for Finance Commission grants from 2021-22 onwards, States will have to notify floor rates for property tax and thereafter show consistent improvement in collection in tandem with the growth rate of State’s own Gross State Domestic Product(GSDP). Additionally, Ministry of Finance, as part of the additional borrowing of 2% of GSDP to States for 2020-21 under Atma Nirbhar Bharat Abhiyan, has linked 0.25% of the additional borrowings to the following reforms in property tax and user charges for water, sewerage and drainage:

(i) The States will notify (a) floor rates of property tax in ULBs which are in consonance with the prevailing circle rates (i.e. guidance value for property transactions) and (b) floor rates of user charges in respect of the provision of water-supply, drainage and sewerage which reflect current costs/past inflation.

(ii) The States will put in place a system of periodic increase in floor rates of property tax/user charges in line with price increase.

Adoption of these reforms by the States will lead to increase in property tax collection thereby increasing the revenue of the ULBs. In order to facilitate the implementation of reforms pertaining to property tax, Ministry of Housing &Urban Affairs (MoHUA) has constituted a Consultative Group of Urban Development Ministers on 29.05.2020 under the chairmanship of Union Minister of State (Independent Charge), Housing and Urban Affairs with regional representation from Gujarat, Odisha, Punjab, Tamil Nadu, Tripura and Uttar Pradesh.

Ministry has undertaken a landscape study for identification of the best practices in property tax and presented the findings to Consultative Group. Considering the inputs received from Consultative Group, Ministry is preparing a toolkit with actionable recommendations and stepwise implementation plan for undertaking property tax reforms in ULBs. These recommendations in toolkit are aimedto enhance the resources available for ULBs.

This was informed by Minister of State (I/C) for Housing and Urban Affairs Hardeep Singh Puri in a written reply in the Lok Sabha today.

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