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).
  • 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.