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Saharanpur Municipal Corporation
Technical assistance to Saharanpur City for generating
revenue through value capture financing tools for Smart
City development
Draft report 1
November 2017
2
List of Abbreviations
ABD: Area Based Development
AEVP Act: Uttar Pradesh Avas Evam Vikas Parishad Adhiniyam,1965
AEVP: Avas Evam Vikas Parishad
AMRUT: Atal Mission for Rejuvenation and Urban Transformation
AT & C: Aggregate technical and commercial
AUDA: Ahmedabad Urban Development Authority
BBMP: Bruhat Bengaluru Mahanagara Palike
BO Act: Uttar Pradesh (Regulations of Building Operations) Act, 1958
BO Rules: Uttar Pradesh (Regulations of Building Operations) Rules, 1985
BPCL: Bharat Petroleum Corporation Limited
Bye Laws: Building Bye Laws, 2008
C & DS: Construction and Design Services
CBUD: Capacity Building for Urban Development
CSR: Corporate Social Responsibility
DCR: Development Control Regulations
DPR: Detailed Project Report
DUTF: Dedicated Urban Transport Fund
EWS: Economically Weaker Section
FAR: Floor Area Ratio
Freehold Policy: Freehold and Redevelopment Policy, 2014
FSI: Floor Space Index
GBP: Great Britain Pound
GDA: Ghaziabad Development Authority
GDP: Gross Domestic Product
GHMC: Greater Hyderabad Municipal Corporation
GO: Government orders
HGCL: Hyderabad Growth Corridor Limited
HIG: High Income Group
HPEC: High Powered Expert Committee
HRIDAY: Heritage City Development and Augmentation Yojana
HUDCO: Housing and Urban Development Corporation
ICT: Information and Communications Technology
IPDS: Integrated Power Development Scheme
IPDS: Integrated Power Development Scheme
SMCURM: Jawaharlal Nehru National Urban Renewal Mission
LIG: Lower Income Group
MC Act: Municipal Corporation Act
MMRDA: Mumbai Metropolitan Region Development Authority
MoF: Ministry of Finance
MoUD: Ministry of Urban Development
3
NLUM: National Urban Livelihood Mission
NMT: Non Motorised Transport
ORR: Outer Ring Road
PEARL: Peer Experience and Reflective Programme
PMAY: Pradhan Mantri Awas Yojna
PPP: Public Private Partnership
RCUES: Regional Centre for Urban and Environmental Studies
SBM: Swacchh Bharat Mission
SCM: SMART CITY Mission,
SDA: Saharanpur Development Authority
SFC: State Finance Commission
SMC: Saharanpur Municipal Corporation
SPV: Special Purpose Vehicle
TCPO: Town & Country Planning Organisation
TDR: Transfer of Development Rights
TIF: Tax increment financing
TOD: Transit Oriented Development
ToR: Terms of Reference
UDA: Urban Development Authority
UIBT: Urban Infrastructure Benefit Tax
ULB: Urban Local Body
UPAVP: Uttar Pradesh Awas Vikas Parishad
UPD (CDC) Rules: Uttar Pradesh Urban Planning and Development (Assessment, Levy and Collection of City Development Charge) Rules, 2014
UPD (DF) Rules: Uttar Pradesh Urban Planning and Development (Assessment, Levy and Collection of Development Fee) Rules, 2014
UPD (LUCC) Rules: Uttar Pradesh Urban Planning and Development (Assessment, Levy and Land Use Conversion Charge) Rules, 2014
UPD Act: Uttar Pradesh Urban Planning and Development Act, 1973
UPEIDA: Uttar Pradesh Expressways Industrial Development Authority
UPMC (UC) Rules: Uttar Pradesh Municipal Corporation (Levying Of User Charges and Regulation of its Procedure and Execution) Rules, 2014
UPPCL: UP Power Corporation Limited
UPSHH Policy: Uttar Pradesh State Housing and Habitat Policy, 2014
USD: United State Dollars
VC: Vice Chairman
VCF: Value Capture Finance
VLT: Vacant Land Tax
4
Contents
Assignment context .......................................................................................................................................... 9
Background .............................................................................................................................................. 9
Introduction to VCF .................................................................................................................................. 9
1.2.1 Value capture finance in India ................................................................................................... 10
1.2.2 Context and rationale of study ................................................................................................... 11
Objectives of the assignment ................................................................................................................. 11
Need for VCF in Saharanpur .................................................................................................................. 12
Structure of the report ............................................................................................................................ 13
Literature review ............................................................................................................................................. 14
VCF policy framework by MoHUA .......................................................................................................... 14
Report on Land Based Fiscal Tools and practices for generating additional financial resources ......... 16
Summary of observations ...................................................................................................................... 18
Case studies ........................................................................................................................................... 19
2.4.1 Land value tax ........................................................................................................................... 20
2.4.2 Vacant land tax .......................................................................................................................... 21
2.4.3 Fees for changing land use ....................................................................................................... 22
2.4.4 Betterment levy.......................................................................................................................... 22
2.4.5 Tax increment financing ............................................................................................................ 23
2.4.6 Transfer of Development Rights................................................................................................ 24
2.4.7 Premium on relaxation of rules or additional FSI/FAR .............................................................. 24
2.4.8 Land pooling system ................................................................................................................. 25
Existing land-based fiscal tools .................................................................................................................... 28
Analysis of municipal finances of SMC and SDA ................................................................................... 28
3.1.1 Saharanpur Municipal Corporation ........................................................................................... 28
3.1.2 Saharanpur Development Authority .......................................................................................... 29
Legislative backing ................................................................................................................................. 30
3.2.1 Property tax ............................................................................................................................... 34
3.2.2 Other water-related charges ...................................................................................................... 39
3.2.3 Tax on deeds of transfer of immovable property ....................................................................... 39
3.2.4 Development fee ....................................................................................................................... 42
3.2.5 Land use conversion charges ................................................................................................... 43
3.2.6 Purchasable FAR charges ........................................................................................................ 44
3.2.7 Compounding charges .............................................................................................................. 45
3.2.8 Development licence fee ........................................................................................................... 46
3.2.9 Map fee ...................................................................................................................................... 47
3.2.10 Impact fee .................................................................................................................................. 48
3.2.11 Mutation charges ....................................................................................................................... 48
3.2.12 Stacking charges ....................................................................................................................... 49
5
3.2.13 Permission fees ......................................................................................................................... 49
3.2.14 Freehold charges ...................................................................................................................... 50
Key takeaways ....................................................................................................................................... 51
Infrastrucure investment and value creation ............................................................................................... 53
Overview of infrastructure investments in Saharanpur .......................................................................... 53
Overview of real estate market trends ................................................................................................... 56
4.2.1 Land use pattern ....................................................................................................................... 56
4.2.2 Demand-supply analysis ........................................................................................................... 57
4.2.3 Market value trends ................................................................................................................... 58
Existing land-based fiscal tools efficacy in value capture financing ........................................................ 60
Performance of existing LBFT ................................................................................................................ 60
LBFTs’ efficacy in capturing incremental market value .......................................................................... 62
Utilisation of LBFT .................................................................................................................................. 63
5.3.1 Infrastructure development fund ................................................................................................ 63
Key takeaways ....................................................................................................................................... 64
Identification of potential VCF tools ............................................................................................................. 65
Evaluation of existing LBFTs against the parameters ............................................................................ 65
6.1.1 Shortlisting of tools .................................................................................................................... 65
6.1.2 Reforms required in the existing tools ....................................................................................... 67
6.1.3 Identification of new tools .......................................................................................................... 70
Summary ................................................................................................................................................ 75
Development of VCF framework.................................................................................................................... 76
Designing of VCF tools........................................................................................................................... 76
Framework for VCF tools ....................................................................................................................... 77
Identification of legal amendments ......................................................................................................... 80
Implementation Plan ....................................................................................................................................... 81
Short term action plan ............................................................................................................................ 81
Medium term action plan ........................................................................................................................ 81
Way forward ..................................................................................................................................................... 83
Annexures ................................................................................................................................................................. 84
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List of tables
Table 1: Methods of value capture ............................................................................................................................. 15
Table 2: Project and area based value capture methods ........................................................................................... 15
Table 3: Various land based fiscal tool - National & International experiences ......................................................... 19
Table 4: Summary table of VCF case studies reviewed ............................................................................................. 26
Table 5: Financial status at a glance - SMC ............................................................................................................... 28
Table 6: Revenue income sources for SMC ............................................................................................................... 28
Table 7: Growth in tax revenues from 2012-13 to 2016-17 ........................................................................................ 29
Table 8: Financial status at a glance - SDA ............................................................................................................... 29
Table 9: Relevant legislations for value capture tools ................................................................................................ 31
Table 10: Fees levied for map approval process by SDA .......................................................................................... 32
Table 11: Summary of LBFTs levied by SMC and SDA ............................................................................................. 34
Table 13: Growth in properties in SMC area from 2016-17 to 2017-18 ..................................................................... 37
Table 14: Average property tax per property in 2013-14 to 2016-17 ......................................................................... 37
Table 15 : Property tax collections for SMC ............................................................................................................... 37
Table 16: Income from water tax for Jalkal, SMC....................................................................................................... 38
Table 17: Revenue from development fee for SDA for FY13 to FY18 ....................................................................... 43
Table 18: Multiplication factor for purchasable FAR calculations ............................................................................... 44
Table 19: Compounding charges income from FY13 to FY16 ................................................................................... 46
Table 20: Categories for development licence fee under Integrated Township Policy .............................................. 46
Table 21: Income from map fee (application & plan fees) from FY13 to FY16 .......................................................... 47
Table 22: Income from Impact fee from FY13 to FY16 .............................................................................................. 48
Table 23: Freehold Charges FY13 to FY16 ................................................................................................................ 51
Table 24: Key features of LBFT in Saharanpur .......................................................................................................... 52
Table 26: Project impact areas of key flagship projects in Saharanpur ..................................................................... 53
Table 27: Project categories under Smart City Mission ............................................................................................. 54
Table 28: Land use pattern of Saharanpur ................................................................................................................. 56
Table 29: Income from charges pertaining to building permissions sanctioned ......................................................... 57
Table 30: Revenue generated from development charges ........................................................................................ 57
Table 31: Number of transactions and the revenue generated for Saharanpur District from FY13 to FY17 ............. 58
Table 32 : Major areas of commercial development................................................................................................... 58
Table 33: Major areas of residential / gated community development ....................................................................... 58
Table 34: Performance of existing LBFT for SMC ...................................................................................................... 60
Table 35: Income from development charges levied by SDA and their shares in revenue income ........................... 61
Table 36: Performance of existing LBFT for SDA ...................................................................................................... 61
Table 37: Contribution of LFBT to the Revenue Income ............................................................................................ 62
Table 38: Evaluation of existing LBFTs to identify areas of reform ............................................................................ 66
Table 39: Demand collection details for property tax ................................................................................................. 67
Table 40: Property tax as a percentage of the circle rate for SMC ............................................................................ 68
Table 41: Increased demand in property tax .............................................................................................................. 68
Table 42: Development fee as a percentage of circle rates in the next four years .................................................... 69
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Table 43: Improved revenues from development fee ................................................................................................. 69
Table 44: Vacant land as % of circle rates ................................................................................................................. 70
Table 45: Additional revenues from vacant land tax .................................................................................................. 71
Table 46: Assumptions for property cess in smart city area ....................................................................................... 71
Table 47: Revenues for cess on property tax in smart city ABD ................................................................................ 71
Table 48: Assumptions for TIF .................................................................................................................................... 72
Table 49: Assumptions for interest payment and tax increments under TIF .............................................................. 72
Table 50: Debt repayment schedule ........................................................................................................................... 73
Table 51: TIF revenues from ABD area ...................................................................................................................... 73
Table 52: Escrow account details for TIF ................................................................................................................... 73
Table 53: Revenue forecasting for existing and proposed tools ................................................................................ 74
Table 54: Key parameters for the existing and new VCF tools .................................................................................. 74
Table 55: Framework for identified VCF tools ............................................................................................................ 79
Table 56: Identification of legislative and regulatory measures for value capture tools ............................................. 80
8
List of figures
Figure 1: Value capture positive feedback loop .......................................................................................................... 10
Figure 2: Revenue income sources - SDA ................................................................................................................. 30
Figure 3: Technical and administrative checks for map approvals for SDA ............................................................... 32
Figure 4: Map sanction process for maps > 300 sq m ............................................................................................... 33
Figure 5: Steps advocated for easing inspection process and map approval as per Business Reform Action Plan 2017 ............................................................................................................................................................................ 33
Figure 6 : Methods for self-assessment of property tax in SMC ................................................................................ 35
Figure 7 : Classification of properties for property tax collection by SMC .................................................................. 35
Figure 8: Per capita property tax in VCF cities in Uttar Pradesh (2016-2017) ........................................................... 38
Figure 9: Water-related taxes and charges levied by JalKal, SMC ............................................................................ 39
Figure 10: Distribution of additional 2.0% stamp duty to various authorities .............................................................. 40
Figure 11: Stamp duty contributions as a percentage of revenue income for SMC (FY12-FY17) ............................. 41
Figure 12: Income from stamp duty contributions for SDA (FY12-FY16) ................................................................... 41
Figure 13: Utilisation of various income sources of SMC and SDA ........................................................................... 63
Figure 14: Framework for value capture financing ..................................................................................................... 78
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Assignment context
Background
Urbanisation is going to be one of the most important global trends over the next few decades. Cities are not only
centres of economic growth, but are also focal points of innovation. However, owing to policy and fiscal limitations,
there is an ever-increasing backlog of infrastructure development in cities.
Indian cities, today, are facing a growing challenge in meeting the demand for urban infrastructure and services.
Several earlier documents like India Infrastructure Report 2009, High Powered Expert Committee (HPEC) Report,
2011 and the Working Group for the 12th Five Year Plan (2012-17) have identified the significance of Land Based
Fiscal Tools (LBFT) in the management of India’s urbanization, thereby providing the necessary impetus for efforts
in this direction. The McKinsey report has estimated that around Rs. 325,000 crore of urban infrastructure
investments are required annually. The High Powered Expert Committee Report 2011 projects urban infrastructure
requirement at 0.75%, which will increase to 1.5% of the gross domestic product (GDP) by 2031 (Rs. 97,500 crore
to Rs. 195,000 crore annually). Presently, national urban missions are investing about Rs. 32,500 crore annually
leading to a gap of nearly Rs. 65,000 crores.
The past few years have also seen systematic focus from Central Governments on urban infrastructure development.
SMCURM, Smart City Mission, Swachha Bharat Mission, AMRUT, HRIDAY schemes are testimony to the
government’s commitment to focused urban development. Reforms proposed under AMRUT include development
of e-governance at the urban local body (ULB) level, constitution and professionalisation of municipal cadres, urban
and city-level planning, review of building by-laws, municipal tax and fee improvements, collection of user charges,
credit ratings of ULBs, and audits for utility services such as electricity and water.
In September 2016, the Ministry of Urban Development started assigning cities with credit ratings. These credit
ratings were assigned based on assets and liabilities of the cities, revenue streams, resources available for capital
investments, accounting practices, and other governance practices. Cities are also pursuing municipal bonds to raise
money for financing specific infrastructure projects. In the last two decades, municipal bonds have been tried by a
few cities, but it has not been able to reach to all potential ones. Thus several improvements in city finances and
internal reforms are in place for raising more resources and reaching all citizens with improved services.
For example, the Smart city mission, initiated by the Ministry of Urban Development (MoUD) envisions driving the
economic growth of cities and improving livability by comprehensive development of institutional, social and physical
infrastructure. A cursory analysis suggests that the 90 cities selected so far in the smart city challenge competition
have proposed an investment to the tune of over INR 1,90,000 crore. Apart from mission grants, cities have identified
multiple other sources such as PPP, own sources, market borrowings, convergence, and CSR to finance the
identified infrastructure investments. In view of the above, strengthening fiscal position of smart cities is necessary.
Using land-based fiscal tools that capture value appreciation, are buoyant and easy to administer constitutes a
promising area for generating additional revenues necessary to fund the infrastructure and replicate the area-based
investments in other parts of the city.
Introduction to VCF
Land is an important urban resource, and the most fundamental asset owned and managed by the states/ ULBs. It
has multidimensional uses. While on one hand it is necessary for providing common infrastructure services, which
enhance the value of the neighbouring land, on the other hand it can also serve as an infrastructure financing tool,
directly or indirectly. Public or community investments in infrastructure be it physical, social or economic, proliferates
the value of land and building properties in the influence area.
10
Value capture refers to recovery of a share increment in
land/property valuation because of positive externalities from
actions other than the land/property owner’s investments.
Appreciation in land valuation is due to regulatory changes,
investments in public infrastructure that increases quality of
housing, jobs access, transportation or social benefits, and
emergence of important commercial, cultural, institutional or
residential developments in the neighbourhood. These
unearned increments can be further captured by government
bodies to help finance infrastructure works in the city/ area.
Broadly, VCF is a process guided by four key steps in
succession: i) value creation, ii) value realisation, iii) value
capture, and iv) value recycle (as illustrated in the adjacent
figure).
Public regulations, policies and investments are the starting
point for a VCF process, resulting in value creation. Private
owners start realising the value created on account of
implementation of such policies, investments, regulations.
For instance, investment made by a developer realises into
monetary value when the housing units are sold along a
metro corridor planned by the government. The developer is
realising a benefit, as the units are sold at a higher price than
the initial cost. Capturing such value increase is the most
important step. Governments and private owners agree to a sharing mechanism beforehand. Finally, the resources
collected are ploughed back into other parts of the city for creating value.
1.2.1 Value capture finance in India
While states and ULBs have been using value capture methods to raise resources, these have been used in limited
capacity. While states/ULBs have been developing and using some of the VCF methods, such as impact fee,
betterment charges, etc, the central government ministries/departments have not yet systematically used VCF
methods as a revenue generation tool.
The Government of India announced its first draft policy framework on VCF in July 2016, and revised policy
framework in June 2017. Two key points summarise the rationale for the VCF policy for India. First, direct sale of
land to raise funds, which is prevalent in many urban areas in the country, has been observed to be a less efficient
way of value capture. Second, many value capture instruments exist (impact fee, betterment charges, etc). However,
these are not applied uniformly across ULBs. As a result, value realisation potential is not maximised. Further, not
all methods of value capture are applied. The draft VCF policy framework states to achieve the following objectives:
Allow for fair allocation of cost among stakeholders, and not only promote public investments in infrastructure but
also prevent distortionary speculative activities
Zoning regulations (like higher floor area ratio (FAR)) can be a powerful instrument to trigger urban transformation
through new public investments in infrastructure creation
VCF methods trigger a self-reinforcing positive feedback loop, where value is created, realised, captured and
recycled. This induces a virtuous cycle of development and shared prosperity, and mutually beneficial partnership
between the government and land owners
Two separate frameworks have been thought out in the policy: urban and non-urban. Even in the absence of such
national-level policy, states have already codified legislations that enable use of various VCF tools (land value
increment taxes, development charges, impact fees, etc).
Figure 1: Value capture positive feedback loop
11
The VCF framework for urban areas envisions three key scenarios:
Extending coverage of existing value capture tools to all parts of the ULB and to all ULBs in the state
Changing existing rate structure to optimise revenue potential
Assessing scope by comparing with other states/countries, and examining their relevance and appropriateness
These scenarios will be used as a starting point in the process of preparing a robust VCF framework for Saharanpur
that effectively leverages on investments proposed under the smart city proposal.
1.2.2 Context and rationale of study
Saharanpur is considered the gateway city for West Uttar Pradesh. Located on National Highway 73, its location is
strategic and provides easy connectivity to all major cities in the state. The city is also the junction point of two state
highways namely State Highway 57 (Delhi – Saharanpur - Yamnotri Highway) and State Highway 59 (Saharanpur-
Muzaffarnagar). Tourists from the states of Punjab, Haryana and National Capital Territory, Delhi pass through this
city to reach other tourist places of Uttrakhand. People visiting religious places such as Haridwar, Rishikesh,
Kedarnath, Badrinath, Gangotri, Yamunotri and Hemkund Sahib and tourist places such as Dehradun and Mussoorie,
all in Uttrakhand, largely pass through this city. Apart from tourist traffic, Saharanpur itself is a market for wood works,
handicraft and handloom, basmati rice, mango, cigarette, and paper production1.
Saharanpur has population of 7,05,478 (census 2011). The total area of the Corporation is 73.72 square kilometres.
Population of the city has increased by 36% in the last ten years. There are about 1.3 lakh households in the city and
an average household sized of 5.
Saharanpur city represents the tradition of woodcraft as the world famous center of wood carving. Saharanpur
woodcraft display various motifs of decoration. Wood carvings are done on decorated furniture, home furnishings
and children’s toys which are exported to various parts of the world.
Attributed to the hyper-enhancing urban activities, a significant growth and strengthening of urban infrastructure is
envisaged. The Uttar Pradesh Nagar Nigam Act 1959 entrusts the Saharanpur Municipal Corporation (SMC) with the
responsibility for maintenance, operation and development of infrastructure services in the city. The SMC under the
74th Constitution Amendment Act is empowered to levy and collect taxes and charges at rates prescribed by the
State Government.
Despite receiving a fair share of revenues and grants from the State and Central Governments, the Municipal
Corporation struggles to meet its fiscal needs owing to the increased revenue demand and limited sources of income.
As the fiscal health of ULBs is imperative to create and upgrade infrastructure required and desired by citizens,
exploring and adopting innovative fiscal tools such as value capture finance (VCF) to improve the financial health of
ULBs is important.
Objectives of the assignment
CRISIL Infrastructure Advisory have been selected by Regional Center for Urban & Environmental Studies, Lucknow
as a state nodal agency under Ministry of Housing and Urban Affairs (MoHUA) to develop a value capture finance
(VCF) framework for Saharanpur (including procedural, legal and institutional aspects) to effectively capture the
additional land/property value being generated through public investments as part of the implementation of the Smart
Cities Mission. The study also envisages in providing handholding support to key stakeholders in drafting regulations
necessary to enable VCF.
The scope of work for the consultant team according to the terms of reference is:
1. Study the MoHUA report on land-based fiscal tools and other reports
1 Wood Craft and Design Development Society
12
2. Assess existing VCF tools in the state and identify areas where VCF can be applied in the following scenarios:
‒ Coverage: Extending existing value capture tool from other parts of the state to the Smart City
‒ Maximise revenue: By changing the existing rate structure in value capture tools of the state to enhance
revenue
‒ Scope: Compare with other states/countries. Examine their relevance and appropriateness to the state/smart
city by:
o Applying incremental changes to existing VCF methods, leading to big increase in revenue
o Identifying new VCF tools leading to large revenue enhancement in the state in the short and long term,
especially in the smart city
o Others
3. For each of the selected methods provide technical assistance to customise the VCF methods for the state and
its ULBs. This will include preparation of legal/executive orders, amendments to regulations/rules, contract
agreement, etc to enable quick roll-out of VCF methods
4. For each of the suggested VCF tools, the consulting firm will provide a cost-benefit analysis
5. For each of the suggested VCF tools, develop draft contract agreements, draft government orders, etc for
implementing the proposed VCF tools
6. For each of the suggested VCF tools, develop a standard contractual agreement/ memorandum of understanding
between the state, ULB and parastatals involved, in order to have stability in revenue-sharing arrangements
7. For each of the suggested VCF tools, the consultant will provide handholding support for implementation of the
interventions, and also support in implementing changes in laws, government orders, bylaws, etc.
8. The consultant will also broadly study projects/modules/packages in the smart city proposals and recommend
the most appropriate VCF method(s) for the project, which may be incorporated in the detailed project reports
and financial operation plan of that project by the smart city Special Purpose Vehicle (SPV)
Need for VCF in Saharanpur
Saharanpur has witnessed several urban development projects in the last five years. While various infrastructure
components of AMRUT are being implemented in the city since the last two years, other infrastructure projects, such
as housing projects, by-pass road, underground electrical cabling and strengthening of transformers, and installation
of solar roof top projects are also underway. The city has been competing to become a smart city, which would have
a multiplier effect on the development and investments upon selection. As the city is strategically located, the city
witnesses high commercial activity along the junction point of its two state highways. The incremental investments in
these areas will have an impact on land prices in the vicinity.
The smart city mission is being implemented nationwide in 109
cities throughout the country where Saharanpur has been
selected amongst these 109 cities to participate in the Smart city
Challenge, by the state. The city is currently competing in
SMART CITY Challenge (Round - 3). Considering the various
flagship programmes like SMART CITY Mission, AMRUT
Mission, NLUM, SBM, IPDS, BPCL and Solar Mission under APJ
Abdul Kalam Scheme by preliminary field investigations it is
estimated that an investment along the lines of INR 1650 crores,
shall be made which would further impact the land prices and
overall quality of life. The biggest component of the future
SMART CITY – INR 1650 Crores
AMRUT – INR 166 Crores
NULM - INR 18 Crores
SBM - INR 0.28 Crores
IPDS – INR 21 Crores
BPCL - INR 33 Crores
Solar Mission - INR 5 Crores
Box 1: Major investments in Saharanpur City
13
investments shall be the projects envisaged in the Smart City Proposal of Saharanpur estimated to be along the lines
of INR 1650 Crores.
The revenues generated by the Municipal Corporation are limited and the finances are dependent largely on property
tax and government grants. A sustainable fiscal health being a pre-requisite for smart cities, considering the
incremental investments to be made in the coming years and in order to capture the land value increment on a
sustained basis, it is imperative that a balanced and well thought out VCF framework be prepared for the city.
Structure of the report
The report is divided into nine chapters including the current chapter which gives the background of the study, its
objective and defines the approach and methodology that would be adopted for carrying out the study. The structure
of rest of the report is defined below
Chapter 2 – Literature review - This section gives a summary of our understanding on MoHUA’s (earlier MoUD’s)
report on “Land based fiscal tools and practices for generating additional financial resources”. The chapter gives an
overview of the existing land based fiscal tools using Indian and International case studies
Chapter 3 - Assessment of existing tools – In this section the existing VCF that are being used in SMC are
discussed and analysed to study the Administrative systems for implementation of VCF tools, their contribution to
the revenues, efficacy of the tools vis-à-vis proposed investment and key issues and challenges being faced by these
tools
Chapter 4 Infrastructure investment and value creation - This section talks about the value creation by the
infrastructure investment in the city and it’s realisation in terms of growth in property value. An overview of the earlier
investment in infrastructure vis-à-vis spatial growth and real estate market trends of the city are studied to assess
the growth in property market value in the past. The proposed investment and future growth drivers for the city are
identified to understand SMC’s real estate growth potential
Chapter 5 - Existing Land based Fiscal tools’ efficacy in Value capture financing - In this section, assessment
of effectiveness of the existing LBFTs in capturing the growth in the property values is studied by assessing their
past performance vis-à-vis the growth in the real estate market value. This chapter also assesses the value recycle
or redistribution by analysing the utilisation of the LBFTs to determine whether the land-based mechanisms are being
used for infrastructure financing to benefit the communities.
Chapter 6 - Identification of potential VCF tools - The main objective of this section is to identify the reforms in
the existing LBFT’s to improve their revenue base and suggest new tools based on the literature study that would be
apt for the city and can be explored as potential revenue source to fund the projects being set by the central/ state
governments and ULBs. Each of the existing tools are evaluated against the identified parameters to identify the
lacuna for which improvements are suggested. Subsequently the reforms that are required to improve the
performance of the existing LBFTs resulting in increase in revenues have been listed. Revenue projections are done
base on the proposed modifications in the existing tools and new tools to arrive at the potential.
Chapter 7 - Development of VCF framework – In this section an implementation structure of VCF tools defining
the regulatory and institutional framework is discussed. This chapter also discusses the implementation challenges
and recommendations to overcome the same
Chapter 8 - Implementation plan – This section discusses the action plan based for implementation of the VCF
framework and defines the timelines for the same
Chapter 9 - Way forward – This section gives approach for extending the handholding support for implementation
of VCF framework.
14
Literature review
We have also reviewed the following documents issued by MoHUA in addition to various secondary literature and
case studies. A summary of key documents reviewed are presented below:
Report on land-based fiscal tools and practices for generating additional financial resources: The report
examines the land-based fiscal tools being used in different states and also in countries. The report further
proposes a land-based fiscal tool that could be devolved to ULBs to augment their revenue.
VCF policy framework, MoHUA, February 2016: With a view to develop a comprehensive VCF framework that
can be used efficiently and optimally across the country, the MoHUA issued a policy framework for innovative
resource mobilisation through VCF. The VCF policy framework is expected to work as a guide for state and city
governments in assessing the scope of resource mobilisation, identifying the area of influence of the proposed
projects and optimising resource mobilisation.
VCF policy framework, MoHUA, June 2017 (revised): The updated VCF policy framework has been developed
as an essential document to inform states and union territories with concepts and key idea behind introducing
VCF mechanisms at the local level to enhance financial strength, and thereby provide better infrastructure. In
addition to the policy framework, a guidance note on one of the VCF tools – impact fees – has also been prepared
to highlight the practical aspects of successfully implementing impact fees. Many different tools have been in
practice for a considerable period in India, as well as in other countries. Success stories of the implementation
of some of these tools to projects such as urban transport and urban infrastructure have been compiled as a
supplement to the policy framework and the guidance note.
Value Capture from Infrastructure Investments for Smart Cities, National Institute of Urban Affairs, May
2016: The paper captures some of the best practices that cities globally have attempted for VCF. It is restricted
to exploring value capture of increases in private land valuation from public investments and public policy actions,
especially under the Smart Cities Mission.
Proceedings of National Workshop on Land Based Fiscal Tools, PEARL Programme, SMCURM, New
Delhi, February, 2014: As part of its mandate to support capacity building and knowledge sharing through the
PEARL network to disseminate knowledge to sector professionals, the MoHUA, in collaboration with Capacity
Building for Urban Development Project (CBUD) and National Institute of Urban Affairs, organised a national
workshop on ‘Land Based Fiscal Tools’ to discuss the findings of the study commissioned to examine in detail
the land-based fiscal tools being used nationally in different states and also by countries. The study reviewed
eight tools and recommended the most appropriate and promising land-based fiscal tool - Urban Infrastructure
Benefit Tax (UIBT).
VCF policy framework by MoHUA
Value Capture Finance Policy Framework, Ministry of Housing and Urban Affairs (2017) is divided into three broader
sections. Section I lays out the definition, methods and types of value capture possible. Section II includes a guidance
note on use of impact fees and possibilities of levying it in the area of influence of new/existing projects. The guidance
note is a supplemental document to the VCF policy framework. Section III includes 14 success stories of VCF
implementation in India and abroad. Key characteristics of the VCF framework are:
The policy framework launched by the MoHUA aims to provide guidance to state governments and union
territories to leverage their assets, and in particular make use of underutilised resources, such as land, to finance
infrastructure. Although in some areas value capture as a tool has been in use for financing urban infrastructure,
it has not yet gained ground as a systematic instrument for revenue generation. The Ministry of Finance in March
2017 issued instructions to include VCF as an integral part of a detailed project report (DPR) for all central
government projects. While appraising of central government projects being implemented in the state, various
15
arrangements like investment boards will ensure that the option of using VCF has been considered and examined
in the DPR.
The framework has been drafted with the aim to bring together various stakeholders involved in the financing
and implementation of infrastructure projects, the existing mechanisms and the required parameters for local
bodies to generate sustainable financial resources.
Detailed case studies included from various states help comprehend the practical aspects of implementing value
capture tools. It is expected that states implement value capture tools in addition to traditional financing methods.
Land is the most fundamental asset that is owned and managed by the states/ULBs, and is a resource to
generate revenue. Traditionally, states/ULBs have relied on direct sale of land to raise funds, which is a less
efficient form of resource mobilisation as compared to value capture. The VCF policy framework captures a vast
range of VCF tools being used in India to encourage states/ ULBs to use the widest range of value capture tools
possible. Land is a state subject and VCF policies have to be made by the concerned state governments.
The MoHUA’s VCF policy framework is restricted to enabling capture of value from increases in private land
valuation from public investments and public policy actions. It does not cover direct monetisation (sale/leasing)
of public land.
The framework elaborates 10 different tools, explains the key concept behind each tool and quotes examples of
state/ULBs that have implemented the value capture tool. A comparative analysis for each tool with frequency of
incidence and scale of intervention (area/ project based) also helps develop clarity for each tool.
The framework classified value capture methods to be used in an area or can be specific to a project.
Table 1: Methods of value capture
Method of value capture Basic premise Triggered by Captures Examples
1 Area-based value
capture
Attempts to capture
basic appreciation of
value of the area as a
result of infrastructure
development
Broader infrastructure
investments in the area
Land and property
values in the locality,
city or larger planning
area
Vacant land tax, land
value tax, etc.
2 Project-based value
capture
Attempts to capture
appreciation of land
and building values in
the area of influence of
the project
Announcement of
specific public
investment project in
an area
Land and property
values in a limited
project area
Premium on FSI
relaxation in
rail project route
Separate frameworks have been discussed for area-based as well as project-based value capture methods. The key
steps in each method have been elaborated below:
Table 2: Project and area based value capture methods
Method/ step Activities envisaged
Project-based value capture
1 Project initiation
At the time of initiation of the project the rules and regulations governing value
capture in state need to be studied
If existing tools are inadequate, new tools are proposed
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Method/ step Activities envisaged
2 Planning
During project finalisation, the area of influence of the project for applying the
VCF tool needs to be delineated
Value impact assessment in the area of influence should form part of DPR
Beneficiary of projects/ stakeholders need to be identified and engaged at
various stages of the project
3 Design and strategy
Identify value capture methods for funding a project and get approvals from
the state for implementation
Finalise type and number of VCF tools to be applied, methods of assessing,
levying and collecting the incremental value generated
Specify arrangement for maintaining funds and agree on sharing between
different stakeholders/ partners
4 Execution and operation Implement efficient mechanism for monitoring of fund management
Regular monitoring and evaluation of the project’s progress
Area-based value capture
1 Scope
Review the different types of value capture tools being used in other states
and countries
Decide on the types that could be used in the area
2 Optimisation Analyse rates of different VCF methods, based on an examination of the rates
being levied by other states and the different ULBs within the same state
3 Coverage VCF tools applicable in small parts of the state can be easily extended to other
areas. These should be identified and scaled-up
4 Review of legislation Examine if existing acts, rules, regulations and bylaws have to be amended
5 Revenue sharing Design and implement mechanisms for sharing of revenue through value
capture between the states/ULBs and other entities
Report on Land Based Fiscal Tools and practices for generating
additional financial resources
This study was commissioned by the MoHUA (earlier MoUD) under the aegis of CBUD programme. The study covers
fiscal tools, including urban land tax, land value increment tax, development charges, indirect fiscal tools like transfer
of development rights (TDR), premium or chargeable floor space index (FSI), and charges for regularisation of
unauthorised development. The report does not consider regularisation of unauthorised development as a fiscal tool.
Property tax and monetising public land are considered as land-based tools. As property tax has been studied
extensively, it has not been included in the report. The report considers monetising public land as a strategy of asset
management and disposal, and not strictly a fiscal tool. This study, therefore, does not cover property tax and
monetising public land. The report classifies fiscal tools as ‘general taxes’, ‘benefit taxes’ and ‘compensatory fees’
by their intent and use. According to the Indian Constitution, no tax (fiscal tool) can be levied without the authority of
law. The exception is regulatory fee. Power of levying regulatory fee is seen to be an integral part of regulatory
function. However, regulatory fees have to be limited to the administrative cost of regulation.
Land is a multi-dimensional resource. Raising financial resources is one of the aspects of land policy. Obtaining land
for public purposes, promoting inclusive housing, redeveloping slums and inner city areas, bringing about planned
expansion of cities, preventing unauthorised development in peri-urban areas and enabling expansion of formal
urban land, real estate and housing market are the other urban development themes that are closely dependent on
land. Consideration of land-based fiscal tools has to be seen in this context in the report. The report categorises
different types of fiscal tools into:
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General taxes: such as property tax where revenues generated can be used for a variety of purposes. It is
suitable for financing of general public services where individual beneficiaries are difficult to identify and individual
costs and benefits are difficult to measure.
Benefit Taxes: are those compulsory levies applied to individuals who are assumed to be benefited from a
certain public services. Development charge is an example of such benefit taxes.
Fees or User Charges: is an instrument used to recover cost of particular infrastructure service where what is
spent and how it is spend is clearly defined. A common example is water user charges measured through meters.
Regulatory Fees: This should only recover your cost of regulation. Every other fiscal measure should have a
constitutional authority
Inference from Indian case studies
Indian states of Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Gujarat have experimented with
several land-based fiscal tools. The notion of capturing land value gains on account of urban development was
introduced in the late 19th century through the Improvement Trust Acts. Later, in 1915, betterment levy was
reintroduced in conjunction with Town Planning Schemes. Provisions for capturing land value gains on account
of specific projects were also included in the Mumbai Metropolitan Region Development Authority Act 1974.
However, none of these are in active use today.
In Gujarat, though Town Planning Schemes have been successfully revived as a way of assembling land,
reconstituting plots and appropriating land for public purposes, the land value gains are not captured; instead
only the cost is recovered through a uniform per sq. m. charge at the time of granting development permission.
Methodological challenges of measuring land value increases attributable to a particular cause have bogged
down this otherwise attractive fiscal tool.
The most widely prevalent land-based fiscal tool is the area-based development charge. Most town planning
laws provide this one-time levy to be collected at the time of granting development permission. This is easy to
administer, as there is no ambiguity in measuring the tax base. The scope for avoidance is limited as the tax is
recovered at the time of granting development permission. The real constraint has been the relatively low rate of
charge prescribed in the act. However, instead of periodically revising the rates most states have opted for adding
supplementary levies linked to the same tax base. The original development charge is overshadowed by such
levies to an extent where the tool initially conceived as a benefit tax is land-based fiscal tools and practices, now
relegated to a position of a regulatory fee as in the case of Gujarat. Being linked to area, this tool intrinsically
lacks buoyancy.
The report summarises that though provisions for Land Value Increment Tax have been on the statute books for
over a century in India these have not worked in practice. It proposes that FSI should essentially be used as a
tool of managing physical development, and not as a fiscal tool. Marketability of TDR, incentive FSI or premium
FSI depends upon creation of regulatory scarcity of development rights, and is, therefore, distortionary. This tool
used, if at all, should be on a limited scale and in no case base the FSI is artificially kept low to exact value of
additional FSI.
Recommendations on Urban Infrastructure Benefit Tax (UIBT)
The report recommends a land-based fiscal tool that has clearly defined tax base, is easy to administer, has no scope
for avoidance and yields buoyant revenue, captures land value gains on account of infrastructure provisions, is
equitable, and does not distort the real estate market. It suggests consideration of UIBT, in the form of a one-time
benefit tax levied at the time of granting development permission on the value of the proposed development.
Key features of UIBT
Tax base: Value of proposed development
Collection: At the time of granting development permission
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Efficient administration: Easy to administer, no scope for avoidance
Buoyancy: Buoyant revenue
Benefit tax: Revenue reserved for capital expenditure in infrastructure
For UIBT, the report proposes that comprehensive provisions may be inserted in town planning/ urban development
authority (UDA) legislation by consolidating multiple charges and fees into a single UIBT. Minimum rates should be
prescribed instead of maximum. ULB/UDA may be enabled to propose revision of rates of UIBT justified through a
capital investment plan. Where UIBT is levied and collected by the UDA, the law may provide for its sharing with the
ULBs. Eventually, ULBs should levy and collect UIBT. The law may provide for surcharge to be levied for financing
capital improvement programmes of UDA or functional agencies
Summary of observations
Indian municipalities are the weakest, in terms of access to resources, revenue raising capacity and fiscal autonomy.
Municipalities in India a very small compared to international benchmarks, with the municipalities subjected to
significant erosion in their fiscal autonomy over time. Hence, there is a need to bring together various stakeholders
involved in financing and implementation of infrastructure projects, the existing mechanisms and the required
parameters for local bodies to generate sustainable financial resources. It is evident that, although in some areas
value capture as a tool has been in use for financing urban infrastructure, it has not yet gained ground as a systematic
instrument for revenue generation.
Case studies cited in several reference documents reveal that there is great potential to mobilise additional resources
and capitalise on the opportunities opened up by using diverse VCF methods. Tools like betterment levy,
development charge, etc. have been popular in various states, while tools such as TDRs and vacant land tax (VLT)
have been used less frequently. Several examples of both project-specific and area-based VCF are available in the
Indian context. The multiplicity of agencies and scattered urban planning and regulation functions have led to VCF
methods evolving under different legislations, policy provisions and institutional environments. In India’s case,
development authorities, municipalities and state agencies are using various tools to capture value generated through
public investments. In the case Saharanpur, the Saharanpur Development Authority has access to several tools that
contribute to its revenue, as the responsibility of granting building permissions and regulating land falls under its
purview.
As noted by the MoHUA report, fiscal tools can be classified as ‘general taxes’, ‘benefit taxes’ and ‘compensatory
fees’ by their intent and use. According to the Indian Constitution, no tax (fiscal tool) can be levied without the authority
of law. The exception is the regulatory fee. Power of levying regulatory fee is seen to be integral part of regulatory
function. However, regulatory fees have to be limited to the administrative cost of regulation. A quick review of land
and building-based charges recovered in Saharanpur show varied nomenclature used for appropriating value in land
and property prices. Surprisingly, the tools used by development authorities find legal support in urban planning acts.
Similarly revenue collected by other parastatals are also supported through relevant legislation.
Some of the important observations in the repost suggest that FSI should essentially be used as a tool to manage
physical development and not as a fiscal tool. Effective use of FSI and TDR instruments is reliant on creation of
regulatory scarcity of land supply. In addition, the report suggests that use of regularisation fee as a fiscal instrument
should be avoided. This is necessary because such policies tend to create vested interest in overlooking the real
issue of unrealistic regulations and planning.
A land-based fiscal tool that has clearly defined tax base, is easy to administer, has no scope for avoidance and
yields buoyant revenue, captures land value gains on account of infrastructure provisions, is equitable and does not
distort the real estate market is the ideal tool, as proposed in the report. In this context, the study will review existing
legislations, institutions and scope to administer VCF tools. MoHUA’s report proposes an UIBT that ticks all the above
requirements as one of the land-based fiscal tools with significant revenue potential.
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Case studies
There are various ways through which VCF instruments are applied by states in India and in various parts of the
world. Value capture is based on the principle that private land and buildings benefit from public investments in
infrastructure and policy decisions of governments. Appropriate VCF tools can be deployed to capture part of the
increment in value of land and buildings. In turn, these can be used to fund projects being set up for the public by the
central/state governments and ULBs. This generates a virtuous cycle in which value is created, realised and
captured, and used again for project investment. In this section we have done a comparative study on land-based
financing tools being used in India and internationally.
Table 3: Various land based fiscal tool - National & International experiences
Tool International Practice Indian Practice
Urban Land Value Tax More than 30 countries around the world have
implemented land value taxation.
In the United States, Bucks County, Pennsylvania
experience with land value taxation dates back to
1913
Australia, Jamaica, and Kenya also have levied
some form of a land value tax
In India, land value tax is levied by Tamil
Nadu and Maharashtra. It is used for
capturing value increment of the land,
other than agricultural land.
Impact fees Impact fees, paid as monetary instead of in-kind
contributions, came into wide use beginning in
United States in the 1970s
Cities and counties of some states such as
California, Colorado, Florida, and Texas have widely
adopted impact fees as a means of financing not only
on-site but off-site infrastructure development as
well. About 29 states in the country have adopted
impact fee enabling legislation (for other than water
and wastewater fees).
Impact fees is also the most common value capture
tool in OECD countries is impact fees
Andhra Pradesh, Gujarat, Maharashtra,
Tamil Nadu and Madhya Pradesh levy
impact fee, and collect it upfront while
granting Development permissions.
Vacant Land Tax (VLT) Has been implemented in Brazil, China, Colombia,
Korea, the Philippines, and Taiwan, China.
Andhra Pradesh and Bihar have
provisions to levy the tax. The object to
levy the tax is to discourage owners to
keep the land vacant in urban areas and
to prevent hoardings and unhygienic
conditions.
Fees for changing land
use
In Punjab and Maharashtra it is legally
backed by Punjab Regional & Town
Planning & Development Act, 1995 and
Maharashtra Regional Town Planning
Act, 1966.
Betterment Levy Columbia is often cites as a success story. Over past
50 years, betterment levies have contributed
significant local revenues in Bogota, Cali Medellin
and other cities often earning up to 25 percent of
local own source revenues.
Uttar Pradesh has provision of laying
betterment levy in Uttar Pradesh Urban
Planning & Development Act, 1973.
Ghaziabad is already imposing
betterment levy on approvals along the
500 metre buffer of metro line.
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Tool International Practice Indian Practice
In Argentina, provinces and municipalities may
finance certain public works through betterment
taxes, when improvements result in increased land
values.
Tax Increment Financing TIF is a financing mechanism created in the United
States and employed for 40 years. It has been
hugely popular with local authorities in raising
funding for critical infrastructure and major urban
regeneration schemes.
TIF has spread outside North America, to be
implemented in the UK. Cities have used TIF to
finance a variety of schemes, not just public
transport.
Hyderabad has used it for funding the
development in 800 peripheral
neighbourhoods. It is under the purview of
Hyderabad Municipal Corporation Act,
1987.
Transfer of Development
Rights
In United States, Calvert County and Montgomery
County, Maryland cited as two of the most successful
examples that were designed to permanently
preserve prime farmland.
The Charles County program, adopted in 1992,
allows TDRs to be sold from rural areas and used to
increase density in a “development district”
New York, NY adopted a new TDR program in 1998
designed to prevent the demolition or conversion of
live-performance theaters
Montgomery County, MD, Seattle City Council have
also experimented with TDR
Maharashtra, Karnataka and Gujarat
have enabling laws for using TDRs for
developing open spaces, promoting
affordable housing, etc.
Premium on relaxation of
rules or additional
FSI/FAR
The Brazilian city of Sao Paulo, holds periodic
auctions for each area, gradually releasing additional
F.A.R so as to maximize the value capture.
It is widely used in Maharashtra,
Karnataka, Gujarat and Tamil Nadu to
allow for additional development rights
beyond the permissible limits in the state
town planning laws and regulations.
Land pooling system The legislative origin of land pooling was established
in 1902 by Franz Adickes, mayor of Frankfurtam-
Main, Germany with the goal of improving the
efficiency of farmland.
Land pooling was used in Hiroshima and Yokohama
after World War II. It was also used for land
acquisition for Bullet Train‖ lines and stations.
In 2007, in Bhutan land pooling was recognized by
municipal act as a development tools and approved
by Cabinet in 2009
In India, Gujarat and Haryana have used
land assembly programmes, where the
owners agree to exchange their barren
lands for infrastructure-serviced smaller
plots.
2.4.1 Land value tax
A land/location value tax (LVT), also called a site valuation tax, split rate tax, or site-value rating, is a levy on the
unimproved value of land. LVT claims to enhance efficiency of the use of land-based taxation in general and may
discourage land and real estate speculation.
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More than 30 countries around the world have implemented land value taxation. In the United States, Bucks County,
Pennsylvania experience with land value taxation dates back to 1913, when the Pennsylvania legislature permitted
Pittsburgh and Scranton to tax land values at a higher rate than building values. A 1951 statute gave smaller
Pennsylvania cities the same option to enact a two rate property tax. The State of Hawaii also has experience with
two-rate taxation, and in recent years the Commonwealth of Virginia and State of Connecticut have authorized a few
municipalities to choose a two-rate property tax, though none of those communities has yet adopted it. Countries as
diverse as Australia, Jamaica, and Kenya also have levied some form of a land value tax. There is strong theoretical
support for land value taxation, in particular for reducing the tax on real estate improvements. Land value taxation is
considered an attractive alternative to the traditional property tax since supporters of land value taxation argue that
converting the property tax into a land value tax would encourage a more efficient use of resources and make the
tax system more equitable.
In India, land value tax is levied by Tamil Nadu and Maharashtra. It is used for capturing value increment of the land,
other than agricultural land. For Tamil Nadu, the tax has a legal backing from the Tamil Nadu Urban Land Tax Act,
1963. The tax is collected under a separate head annually.
2.4.2 Impact fees
Impact fees - It is an area-based charge, i.e. collection pertains to certain developed area whose market value has
increased due to construction of a major project.
Impact fees, paid as monetary instead of in-kind contributions, came into wide use beginning in United States in the
1970s, providing a more efficient and flexible means of local infrastructure financing such negotiated or ad hoc
exactions. The cities and counties of some states such as California, Colorado, Florida, and Texas have widely
adopted impact fees as a means of financing not only on-site but off-site infrastructure development as well.
In case of United States, impact fees were pioneered by local governments in the absence of explicit state enabling
legislation. Consequently, such fees were originally defended as an exercise of local government's broad "police
power" to protect the health, safety and welfare of the community. The courts gradually developed guidelines for
constitutionally valid impact fees, based on a "rational nexus" that must exist between the regulatory fee or exaction
and the activity that is being regulated. Texas adopted the first general impact fee enabling act in 1987. To date, 29
states have adopted impact fee enabling legislation (for other than water and wastewater fees). These acts have
tended to embody the constitutional standards that have been developed by the courts.
The most common value capture tool in OECD countries is impact fees paid by landowners for construction of
infrastructure that services their plots. They are often charged when land is initially developed, but may also be due
when infrastructure is upgraded or significantly rehabilitated.
Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Madhya Pradesh levy impact fee, and collect it upfront while
granting development permissions. It is a one-time levy. Development authorities and municipal corporations can
assess the impact area due to any major project, and then levy the impact fee in that area. In Andhra Pradesh, it is
legally backed by Andhra Pradesh Urban Areas (Development) Act, 1975 and under Special Development
Regulations. Globally, impact fee is widely used to fund infrastructure in the US.
2.4.2 Vacant land tax
It is an area-based intervention, and is levied annually until the building is constructed on the plot. It is applicable on
those landowners who have not yet initiated construction on their lands. Some developing countries have
experimented with vacant land taxation. A World Bank review of the nine cases of VLT around the world showed that
various governments have different ways of defining, identifying, and prioritizing vacant land; of structuring vacant
land fees; of choosing an implementation mechanism; and of deciding who benefits from the fee and how, as well as
the various penalties to be imposed in the absence of required payment. In developed countries, the main motivation
for VLT seems to be addressing disinvestment and blight in cities. However, in developing countries, the focus of this
tool is on fighting speculation. This is demonstrated by the examples of Brazil, China, Colombia, Korea, the
22
Philippines, and Taiwan, China. The implementing agency for imposing and collecting the tax is usually the local
government. The tax revenues collected are deposited into the city’s general fund and are used for public purposes.
The Philippines presents a unique case. If a city implementing a tax on idle land is located within Metropolitan Manila,
then the tax revenues get split between the city and the Metropolitan Manila Authority.
The postindustrial city of Harrisburg, Pennsylvania, in the United States has been experiencing economic decline for
the past several decades. The city started a vacant land tax program hoping that lowering the tax rate on building
values and raising it on land values would stimulate new development and conservation of older buildings. In effect,
the land value taxation was used as a local policy tool to help reverse economic decline and encourage urban
revitalization. Another example is Seoul, in the Republic of Korea, which experienced a 136 percent increase in land
prices in 1978 mainly due to massive speculation. This in turn increased demand for land and decreased market
supply, thereby widening the gap between landowners and non-land owners. This motivated the government to
impose a vacant land tax to discourage speculation and promote development. Any land parcel left vacant for two
years was considered idle land and was subject to a 5 percent property tax, instead of the normal 2 percent. Similarly,
a 7 percent and 8 percent tax would apply for land left vacant for three and five years, respectively. The government
would confiscate the land if the taxes were not received. Some other cities in developing countries have also
experimented with this tool.
Andhra Pradesh and Bihar have provision to levy the tax. The object to levy the tax is to discourage owners to keep
the land vacant in urban areas and to prevent hoardings and unhygienic conditions. In Andhra Pradesh, the Greater
Hyderabad Municipal Corporation (GHMC) under the Hyderabad Municipal Corporation Act, 1987 imposes a tax of
0.5% of the registration value of the land and a penalty of 0.25% of the capital value of the land where garbage is
dumped and unhygienic conditions are prevailing on the vacant lands.
2.4.3 Fees for changing land use
It as an area-based intervention, and is levied once by the development authority/housing board at the time of giving
permission for change of land use. Land revenue codes provide for procedures to obtain permission for conversion
of land use.
Almost all states have such provisions in their town and country planning acts. In Punjab and Maharashtra it is legally
backed by Punjab Regional & Town Planning & Development Act, 1995 and Maharashtra Regional Town Planning
Act, 1966.
2.4.4 Betterment levy
It could be area- or project-based intervention, and is a one-time upfront charge on the land value gain because of
public infrastructure investments.
Colombia long has been cited for its successful use of contribución de valorización, a form of betterment levy, to
finance urban infrastructure. The law, although applicable for a wide variety of public works, in practice was applied
mostly to road construction and road improvements. It allocated payments from landowners proportionately to the
estimated increase in land values resulting from public works (benefit capitalization). Land-value gains were not
measured by market prices or appraisals; rather they were estimated beforehand through a formula based on various
factors, including size of the land parcel, location relative to the infrastructure work, land-use activity, and others.
Revenue was collected before and during project construction and was not adjusted ex post for actual changes in
land prices. Land parcels within a special planning district, where the municipal government had authorized
conversion of land from rural to urban use or rezoned land for higher density, could be subjected to a betterment levy
of 30 to 50 percent, at municipal discretion. The betterment levy was applied to the price increment enjoyed by the
landowner as a result of planning authorization. Payment of the betterment levy was due on realization of the land-
value gain at the time of land sale or development. Proceeds are to be used for infrastructure investment to support
the newly urbanized territory.
23
In Argentina, provinces and municipalities may finance certain public works through betterment taxes, when
improvements result in increased land values. Of all countries, where betterment levies have been used to fund
infrastructure, Columbia is often cites as a success story. Over past 50 years, betterment levies have contributed
significant local revenues in Bogota, Cali Medellin and other cities often earning up to 25 percent of local own source
revenues.
Uttar Pradesh has provision of laying betterment levy in Uttar Pradesh Urban Planning & Development Act, 1973.
Ghaziabad is already imposing betterment levy on approvals along the 500 metre buffer of metro line. Gujarat levy
betterment fees under all the town planning schemes. Bengaluru levy betterment fees on the properties registering
under the Bruhat Bengaluru Mahanagara Palike (BBMP) region. Internationally, the UK has imposed betterment levy
equal to 40% of the land value gain attributed to public investments.
2.4.5 Tax increment financing
Tax Increment Financing (TIF) is a financing option that uses expected future gains in state or municipal property
taxes from a development or redevelopment project to finance improvements that will create those gains. TIF has
been acknowledged as a self-financing economic development tool and has been used for redevelopment projects
as well as development of infrastructure and other community related projects.
TIF is a financing mechanism created in the United States and employed for 40 years. It has been hugely popular
with local authorities in raising funding for critical infrastructure and major urban regeneration schemes. Recently,
TIF has spread outside North America, to be implemented in the UK. Cities have used TIF to finance a variety of
schemes, not just public transport. These schemes include, but are not limited to, public infrastructure, land
acquisition, demolition, utilities and planning costs, and improvements such as sewer expansion and repair, kerb and
pavement works, storm drainage, traffic control, street construction and expansion, street lighting, water supply,
landscaping, park improvements, environmental remediation, bridge construction and repair, and parking structures.
The rules for tax increment financing, and even its name, vary across the 48 states in United States in which the
practice is authorized. TIF expenditures are often debt financed in anticipation of future tax revenues. The practice
dates to California in 1952, where it started as an innovative way of raising local matching funds for federal grants.
TIF became increasingly popular in the 1980s and 1990s, when there were declines in subsidies for local economic
development from federal grants, state grants, and federal tax subsidies (especially industrial development bonds).
For example, Chicago’s TIF program began in 1984 with the goal of promoting business, industrial, and residential
development in areas that struggled to attract or retain housing, jobs, or commercial activity. As of July 2016, there
have been 146 TIF districts in the City. During 2015, the City received incremental property tax revenue from 128 of
the 146 current TIF districts. Chicago’s TIF program is administered by the City of Chicago Department of Planning
& Development (DPD). TIF districts are created through the cooperation of the DPD, the community and developers,
and the approval of the City Council. TIF revenue is derived from increases in property tax revenue. The city has also
used TIF to improve infrastructure and amenities at street level throughout the CBD, via investment in bus shelters,
subway entrances, landscaping (including trees, flowerbeds and planters) and street lighting. This investment has
attracted people and commercial activity back into the CBD. TIF has as well been used for residential development,
which includes the construction of low income and affordable housing, rehabilitation of homes, and funds for the
Chicago Housing Authority.
Thus, TIF is a project-based intervention, and is levied annually for a fixed period of time. In tax increment financing,
the incremental revenue from future increase in property tax or a surcharge on existing property tax rate is ring-
fenced for a defined period to finance new investments in the designated area. Tax increment financing tools are
especially useful to finance new investments in existing habitations. It is collected by the Municipal Corporation as a
percent of property tax. Hyderabad has used it for funding the development in 800 peripheral neighbourhoods. It is
under the purview of Hyderabad Municipal Corporation Act, 1987. Internationally, it is very popular in the US, which
imposes tax increment financing for undertaking development projects in any region.
24
2.4.6 Transfer of Development Rights
Transfer of development rights (TDR) is a market based technique that encourages the voluntary transfer of growth
from places where a community would like to see less development (called sending areas) to places where a
community would like to see more development (called receiving areas). The sending areas can be environmentally-
sensitive properties, open space, agricultural land, wildlife habitat, historic landmarks or any other places that are
important to a community.
Local governments in the United States regulate in a variety of ways, but the primary instrument is zoning laws, which
establish the allowable uses on particular parcels of land and the intensity of those uses. One planning tool that is
used in combination with zoning is a system of transferable development rights. Calvert County and Montgomery
County, Maryland cited as two of the most successful in the United States were initiated around 1980 and were
designed to permanently preserve prime farmland. The Charles County program, adopted in 1992, allows TDRs to
be sold from rural areas and used to increase density in a “development district” in the northern part of the county,
close to Washington, D.C.
New York, NY became the first community in the United States to adopt TDR provisions when it approved its
Landmarks Preservation Law in 1968. The city adopted a new TDR program in 1998 designed to prevent the
demolition or conversion of live-performance theaters in the Broadway theater district. Montgomery County, MD has
the most successful TDR program in the country. County had permanently preserved over 38,000 acres of farmland
using TDRs. In 2004, Seattle City Council approved the sale of TDR’s at $1.6 million for low-income housing and to
pay off $147,630 worth of existing debt for Benaroya Hall. In exchange The Washington Mutal Bank and the Seattle
Art Museum are allowed increased density in the new office tower and an expansion to the Seattle Art Museum.
Thus, it is an area/project-based intervention, and is levied one-time while taking permission for the TDR. It is used
for trading development rights. Maharashtra, Karnataka and Gujarat have enabling laws for using TDRs for
developing open spaces, promoting affordable housing, etc. Ahmedabad uses TDRs for preservation of heritage
open spaces or cultural resources, and is a way to compensate property owners for loss in revenue on their
properties. In Mumbai, it is used for slum rehabilitation schemes, where a minimum of 70% of eligible slum dwellers
in a pocket have come together to form a cooperative housing society for implementing the scheme. It is backed by
the development control regulations (DCR) norms of the area. Internationally, New York uses TDR for preservation
purposes.
2.4.7 Premium on relaxation of rules or additional FSI/FAR
It is a project-based intervention, and is levied one-time. Internationally, sale of additional floor area ratio (FAR) is an
important value capture tool in Brazil and France. The French urban reform and land policy of 1975, Plafond Légal
de Densité sought to enhance land use control efficiency, reduce social inequalities, and promote more citizen
participation in planning. It sets a density ceiling (FAR) of 1 by right for most of the country, with the exception of
Paris, where it was fixed at 1.5. Any building rights admitted by local legislation over and above that limit required
payments based on the additional square meters of built area.
In 1995, the Brazilian city of Sao Paulo introduced an innovative instrument, Certificates of Additional Potential
Construction Bonds (CEPACs), to facilitate price discovery for the additional building rights. It sold a limited quantity
of building rights for a large enough area – one CEPAC for each square meter of additional building right - through
an electronic auction. The national securities market regulator regulates the issuance of CEPACs. Those proposing
to build over the basic F.A.R would have to purchase CEPACs from the secondary market. The city holds periodic
auctions for each area, gradually releasing additional F.A.R so as to maximize the value capture. This can be a
potentially useful strategy for transparent value capture, especially in new developments.
It is widely used in Maharashtra, Karnataka, Gujarat and Tamil Nadu to allow for additional development rights
beyond the permissible limits in the state town planning laws and regulations.
25
2.4.8 Land pooling system
It is an area-based intervention and is used one-time for planned development purposes. It is a form of land
procurement where all land parcels in an area are pooled, converted into a layout, infrastructure developed, and a
share of the land, in proportion to original ownership, returned as reconstituted parcels.
The legislative origin of land pooling was established in 1902 by Franz Adickes, mayor of Frankfurtam-Main, Germany
with the goal of improving the efficiency of farmland. Land pooling process for farmland in Germany. Farmers
temporarily put land titles in a common pool and then plan for more rational farmland boundaries was made. Then
finally, titles were assigned back to farmers according to the plan.
First major urban uses of land pooling: After the 1923 Great Kanto earthquake (Toyko), land pooling allowed the city
to address a medieval street pattern and rebuild with minimum use of public funds. Rebuilding of Nagoya, Osaka,
Hiroshima and Yokohama after World War II. It was also used for land acquisition for Bullet Train‖ lines and stations.
In 2007, in Bhutan land pooling was recognized by municipal act as a development tools and approved by Cabinet
in 2009. In the same year, Thimpu was given powers for carrying out land pooling. Bhutan land pooling rules require
more than two thirds of landowners to agree to land expropriation with maximum of land contribution of 30 percent.
The rules on land transactions in land pooling areas are complemented by processes and procedures for community
consultation and redress of grievances.
In India, Gujarat and Haryana have used land assembly programmes, where the owners agree to exchange their
barren lands for infrastructure-serviced smaller plots. Gujarat has used these tools to guide the development of
Ahmedabad city and its surrounding infrastructure. Andhra Pradesh has used it to get land for Amravati, its new
capital city. Internationally, it is a common feature in Japan and Germany.
26
Table 4: Summary table of VCF case studies reviewed
S.N. VCF instrument State/ City Area/ City / State wide VCF method (Project or
Area based) Collection Frequency Relevant Legislation Administration Agency for instrument
1 Urban Land Value Tax Tamil Nadu City wide (in 23 cities) Area (City -Wide) Annual (annual rates based on
gain in land value uniformly)
Tamil Nadu Urban Land Tax Act,
1963 Board of Revenue, State Government
2
Impact fees
Hyderabad Outer Ring Road (ORR) Growth Corridor,
Hyderabad
Area (Master Plan Area of
Outer Ring road) One time Special Development Regulations
Hyderabad Growth Corridor Limited (HGCL)
a SPV
3 Hyderabad Along designated Commercial Corridors in
Hyderabad
Area
(Along Designated A,B &
C category Commercial
Corridors)
One time Andhra Pradesh Urban Areas
(Development) Act, 1975 Greater Hyderabad Municipal Corporation
4
Gujarat (used for
regularizing unauthorised
development)
All Municipal Corporations, Municipalities,
Area Development Authority areas Area (City Wide) One time
Gujarat Regularisation of
Unauthorised Development Act,
2011
Area/Development Authority or Municipal
Corporation
5
Vacant Land Tax (VLT)
Greater Hyderabad
Municipal Corporation
(GHMC)
Municipal Corporation Areas Area (City Wide)
Recurring, until building is
constructed on the plot
Hyderabad Municipal Corporation
Act-1987 Municipal Corporation
6 Telangana and Bihar All Municipalities Area (City Wide)
Bihar Property Tax (Assessment,
Collection and Recovery) Rules,
2013
Municipal Corporation
7
Fees for changing land use
Punjab Entire State as per nine designated zones
Area (With variations in
charges based on
distance from city center
or periphery) One-time at the time of giving
permission for change of land use
Punjab Regional & Town Planning &
Development Act, 1995 Development Authority
8 Maharashtra State wide Area Maharashtra Regional Town
Planning Act, 1966 Development Authority
9
Betterment Levy
Uttar Pradesh In all Development Authority Areas Area/Project One time Uttar Pradesh Urban Planning &
Development Act-1973 Development Authority
10 Ghaziabad Along Metro Corridors impact zones Project (500 m on either
side of the metro corridor) One time
Uttar Pradesh Urban Planning &
Development Act-1973 Development Authority
11 Gujarat All Town Planning schemes across Gujarat Area One time Gujarat Town Planning & Urban
Development Act 1976 Development Authority
12 Nagpur All improvement trust schemes in Nagpur Project One time Nagpur Improvement Trust Act,
1936 Improvement Trust
13 Bengaluru For all properties with Khata B merged in to
BBMP area
Area (Localities merged
into the BBMP boundary) One time
Karnataka Municipal Corporations
Act, 1976 Municipal Corporation
14 Tax Increment Financing Hyderabad In 800 peripheral neighbourhoods for
Hyderabad Project Recurring for a fixed period of time
Hyderabad Municipal Corporation
Act-1987 Municipal Corporation
15 Transfer of Development Rights Mumbai
For Slum rehabilitation schemes where a
minimum of 70% of eligible slum dwellers in a
pocket come together to form a co-operative
housing society for scheme implementation
Area/Project Based One time Maharashtra Town & Country Act
1966 Development Authority
27
S.N. VCF instrument State/ City Area/ City / State wide VCF method (Project or
Area based) Collection Frequency Relevant Legislation Administration Agency for instrument
16 Hyderabad
The owner of the affected land or building in
the road widening project is entitled for an
TDR from the Municipal Corporation or built
an extra floor
Area One time Greater Hyderabad Municipal
Corporation Act, 1955 Municipal Corporation
17 Premium on Relaxation of rules or
Additional FSI Rajkot
250 metres along the sides of the BRTS
corridor Project One time Gujarat Municipal Corporation Act. SPV
18
Land Pooling System
Gujarat Applicable to 100 -150 hectares under the
approved Development Plan Area One time
Gujarat Town Planning & Urban
Development Act 1976 Development Authority
19
Magarpatta Model of
Township Development,
Maharashtra
The Farmers Pooled their land, got approval
for building a township and themselves build it
by formulating a Magarpatta Township
Development and Construction Company
Limited
Area One time Maharashtra Regional & Town
Planning Act, 1966 Farmer Groups
20 Ahmedabad Ring Road
AUDA reconstituted 1 KM wide belt adjacent
to the ring road. Out of the total land acquired,
60% was returned to the landowners, 20-30%
was used to develop amenities like roads,
schools and gardens, rest sold as separate
plots.
Area One time Gujarat Town Planning & Urban
Development Act 1976 Ahmedabad Development Authority
21 Land Acquisition and Development Bandra Kurla Complex,
Mumbai
The State Government land was taken by
MMRDA, leased for 80 years, Developed and
then Auctioned with capital values increased
more than 100% in two years.
Area One time MMRDA Act, 1974 Mumbai Metropolitan Regional Development
Authority
22 Public Private Partnership (PPP) Gurgaon, Haryana HUDA to finance project Auctioned land and
developed the land through PPP Model Area One time
Haryana Development and
Regulation of Urban Areas Act, 1975 Gurgaon Development Authority
28
Existing land-based fiscal tools
This section discusses existing land-based fiscal tools (LBFT) being used in Saharanpur and corresponding legal
and regulatory framework for each tool. The objective is to have an understanding of the tax base, rate structure,
revenue contribution, institutional mechanism, implementation framework and associated challenges if any. Before
analysing LBFTs, financials of SMC and SDA have been assessed. Detailed analysis of each of the LBFTs is
provided in subsequent sections.
Analysis of municipal finances of SMC and SDA
3.1.1 Saharanpur Municipal Corporation
Saharanpur Municipal Corporation (SMC) was constituted in 2009 and is a comparatively new municipal corporation.
It has jurisdiction over Saharanpur municipal area of 43.00 sq km. Under 74th Constitutional Amendment Act, SMC
is obliged to provide basic infrastructure including roads and drainage and sewerage, water supply, street lighting
and services covering education, poverty alleviation, slum improvement, urban forestry, environment protection and
conservation, primary health, etc. Apart from SMC, Saharanpur Development Authority (SDA), and Uttar Pradesh
Awas Vikas Parishad (AVP) also provide and govern various infrastructure services in the city.
Table 5: Financial status at a glance - SMC
# Income (Rs. in crore) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17 (A)
A Revenue income 50.49 82.27 89.18 105.6 113.84
B Capital income 8.24 19.24 9.12 17.81 30.08
Total income 59.38 58.73 101.51 98.3 123.41
D Revenue expenditure 90.92 90.92 90.92 133.56 160.18
E Capital expenditure 14.6 14.6 14.6 14.5 57.02
Total expenditure 106.25 105.52 105.52 105.52 148.06
G Revenue surplus/Deficit (A-D) -40.43 -8.65 -1.74 -27.96 -46.34
H Capital surplus/ Deficit (B-E) -6.36 4.64 -5.48 3.31 -26.94
Overall surplus/ Deficit -46.79 -46.79 -4.01 -7.22 -24.65
Source: SMC re-casted budget
The above table indicates that SMC’s income from revenue sources has traditionally not been able to meet its
revenue expenditure. Grants from state finance commissions make for significant contribution to revenue income of
the corporation. SMC’s expenses have largely been managed through revenue income, but a constant deficit can be
seen over the analysed period. CRISIL Ratings has assigned credit rating of BB+ to SMC in March 2017.
Table 6: Revenue income sources for SMC
Income (Rs. in Crores) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17 (A) CAGR
General tax and other taxes 3.94 4.09 5.3 6.81 13.31 36%
Income for municipal properties 5.82 12.32 9.16 10.64 8.66 10%
SFC grants 40.73 65.86 74.72 88.14 91.88 23%
Total revenue income 50.49 82.27 89.18 105.59 113.85 23%
Source: SMC, CRIS Analysis
29
SMC’s revenue income has grown at CAGR of 23%. General and other taxes (including property tax) have grown at
CAGR OF 36%, which is a significant achievement considering size of the city and the fact that it is a newly constituted
corporation. Income from rents from municipal properties and other sources have increased at CAGR of 10%. This
includes lease rent, rental for SMC’s properties, income for parking contracts, licenses, contributions from stamp
duty, road cutting charges, transfer fees received from Saharanpur Development Authority (SDA) while handing over
their colonies etc. Within tax income, general tax has grown at CAGR of 36%. Similar to the overall state scenario,
the biggest contributor to revenue income has been SFC grants, which have increased at CAGR of 23%. Property
tax almost doubled in 2016-17 subsequent to a survey undertaken by the municipal corporation in 2015 and
completed in 2016. The survey led to addition of around 32 revenue villages within the boundaries of the municipal
corporation, cumulatively resulting in spike in number of assessed properties by 24,000, as showed in Table 14.
Table 7: Growth in tax revenues from 2012-13 to 2016-17
(Rs. in crore) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17 (A) CAGR
Property tax 3.92 4.08 4.76 6.22 12.86 35%
Advertisement tax 0.00 0.00 0.31 0.56 0.38 10%
Income from cinema hall and show
taxes 0.02 0.02 0.02 0.00 0.00 -53%
Total general tax 3.94 4.09 5.09 6.78 13.24 35%
Source: SMC, CRIS Analysis
3.1.2 Saharanpur Development Authority
Established in 1974 under UPD Act 1973, SDA aims to coordinate planned and sustainable development of the city.
One of its functions is to develop housing schemes in the city to meet growing demand. SDA develops housing
colonies including basic infrastructure like roads, sewer lines, drainage lines and parks. After selling the plots,
infrastructure and facilities developed by SDA are transferred to the municipal corporation for operation and
maintenance. To fulfill its role, SDA seeks to coordinate with various other agencies involved in creation and
extension of urban infrastructure, in accordance with a comprehensive master plan.
Table 8: Financial status at a glance - SDA
Amount (In Rs. Crore) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
Revenue income 6.54 3.48 3.34 3.53 -19%
Capital income 13.29 10.49 11.74 12.28 -3%
Total income (A) 19.83 13.97 15.09 15.81 -7%
Revenue expenditure 5.54 4.97 3.75 3.61 -13%
Capital expenditure 4.04 10.97 16.70 9.16 31%
Total expenditure (B) 9.58 15.94 20.45 12.77 10%
Surplus/Deficit (A-B) 10.25 -1.97 -5.36 3.04 -33%
Source: SDA Budget, (Capital Income & Expenditure) derived from balance sheet, 2012-13 to 2015-16
For SDA, the income has decreased from Rs 19.83 crore and Rs 15.81 crore in the period 2012-13 to 2015-16,
decreasing at CAGR of -7%. SDA has not been able to maintain a constant surplus over the last couple of years.
After 2012-13, SDA witnessed overall deficit consecutively in 2013-14 and 2014-15.
Revenue income sources comprise rent income, stamp duty and others, income from building department and other
income (sale of forms), etc. Income from building permissions department has been analysed in subsequent sections;
it comprises various value capture tools including external development fee, betterment fee, application & map fees
30
and impact fees. As illustrated in Figure 2, income from building department of SDA has grown at 24% CAGR
between 2012-13 and 2015-16.
Figure 2: Revenue income sources - SDA
Source: SDA, CRIS Analysis
From a comparison of revenue income of SMC and SDA in 2015-16, it can be inferred that unlike larger cities in Uttar
Pradesh, SDA has lower revenue income than SMC. Property tax collection remains the single-largest revenue
source for local authorities in smaller towns. Both SMC and SDA experience deficit in revenues to meet their
expenditures.
One of SDA’s income sources in the years analysed is sale of plots and free hold charges through Transport Nagar
residential scheme. SMC however claims high coverage and efficiency in collection of general taxes and assessment
of properties. Collection efficiency has grown steadily, from 65% to 90% from 2013-14 to 2016-17.
In view of proposed projects under Smart City Mission (SCM), AMRUT, and other proposals to overcome backlog of
infrastructure and provide basic services, SMC needs to not only maintain revenue from own sources, but find
avenues to augment the same. It is essential to develop a comprehensive VCF framework so that it can be used
efficiently and optimally across the city, to finance infrastructure and enhance finances of local bodies. The sections
below analyse the existing land-based fiscal tools that form a part of own revenue sources, to identify lacunae and
define prospects of improvement if any.
Legislative backing
Since fiscal tools are backed by legislation and levied by authority of law, it becomes imperative to study governing
Acts or Rules, to obtain basic understanding of these tools. The ULBs in the state are governed by two separate
Acts. One governs the nagar palika parishads and nagar panchayats, and the other, municipal corporations.
Accordingly, SMC is governed through Uttar Pradesh Nagar Mahapalika Adhiniyam, 1959. Uttar Pradesh has created
a comprehensive legislative framework to manage urban affairs through planning, administrative and regulatory
control. Building construction-related legislation and policies show that the state has been consistent and serious in
pursuing its housing and sustainable habitat agenda. The following legislations are relevant for the purpose of our
study.
0.00
100.00
200.00
300.00
400.00
500.00
600.00
2012-13(A) 2013-14(A) 2014-15(A) 2015-16(A)
Rent Income Income from Building Dept Stamp duty & Others Other Income, sale of forms etc
31
Table 9: Relevant legislations for value capture tools
Act Description
1
Uttar Pradesh Nagar
Mahapalika Adhiniyam,
1959
This Act lays down guidelines for constitution and governance of municipal corporations in Uttar
Pradesh. Detailed mechanisms related to working of various committees, appointment of staff,
functions, taxation, borrowing and fund management are also prescribed. The Act contains
detailed chapters on essential municipal services like water supply, drainage, sewerage, streets
and improvement schemes.
2
Uttar Pradesh Urban
Planning &
Development Act, 1973
The Act was formulated in the ‘70s to tackle town planning and urban development problems
that could not be managed by local bodies and other authorities. Development authorities in Uttar
Pradesh were created on the lines of Delhi Development Authority. The Act specifies the purpose
and process of designating a development authority, including its structure and financial
processes. Detailed process of preparation and approval of the master plan, zonal development
plan, land acquisition and disposal to be undertaken by the development authority are also
articulated in the Act.
3
Uttar Pradesh
Apartment (Promotion
of construction,
Ownership and
maintenance) Act, 2010
This Act extends to the whole state and applies to all buildings with four or more apartments or
to buildings converted into apartments excluding shopping malls and multiplexes. It spells out
general liabilities of promoters, rights and obligations of owners, specifies bye-laws related to
association of apartment owners.
4
Uttar Pradesh Housing
& Development Board
Act, 1965
This Act extends to the whole of Uttar Pradesh, excluding cantonment areas. It allows for
establishment of a board with detailed procedures and arrangements. The work profile includes
framing and execution of housing and improvement schemes and provision of technical advice
in the sector. The board also executes public sector projects, provides building permissions and
develops infrastructure in the schemes regulated by it
5
Uttar Pradesh
Zamindari Unmulan &
Bhumi Sudhar
Adhiniyam, 1950
Consequent to this Act, all rights, titles and interests of all intermediaries were terminated and
ceased from the date of vesting. The land cultivated by an intermediary as his "sir" (share-
cropped) or "khudkasht" (self-cultivated) land was converted into his bhumidhari (ownership).
The cultivators got ownership rights and the government directly started collecting land revenue
from farmers. Public land such as village ponds, grazing grounds, and village streets, which were
used by the zamindars as personal property, were declared as community property. Several
amendments have been undertaken to restrict tenancy and define the extent and nature of
tenancy. Section 143 of the Act authorises assistant collector/SDM to change the nature of a
land parcel from agricultural to residential.
Additional central legislation relevant for urban planning and development include: (i) Right to Fair Compensation
and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (ii) Ancient Monuments and
Archaeological Sites and Remains Act, 1958 and (iii) Real Estate (Regulation and Development) Act, 2016.
Uttar Pradesh has adopted several measures to tap gains in value from its planning system and infrastructure
development, including development charges, change of land use fees, sale of FAR, etc. These are levied under
several Acts, as elaborated above. Certain charges are finalised through resolutions passed and approved by the
board of concerned DAs. Interactions with ULB officials reveal that property tax is the only tool administered by SMC.
Other land-based tools are implemented by SDA and AVP to a certain degree.
Through its Map Department, SDA levies certain charges at the time of sanction of schemes or while giving building
permissions in accordance with existing bye-laws and other applicable rules and regulations. SDA has provision to
approve building permissions online if the property size is less than 300 sq m; permissions above 300 sq m are given
manually. The process chart for administrative and technical checks for maps is illustrated in figures 3 and 4 below.
Charges collected during the sanction process are map fee (application and plan fees), inspection fee, etc. by SDA.
32
SDA sanctions maps in accordance with bye-laws and other regulations applicable at the time of sanction. For plots
above 300 sq m, sanction of the authority is required. For plots up to 300 sq m, map is considered sanctioned on the
basis of certificate of an architect, if not rejected by SDA within thirty days from the date of deposit of map with
requisite fees. SDA is authorised to sanction building maps for following cases:
All schemes of Saharanpur Development Authority
Area for which the layout plan is approved by SDA
Area developed or registered by SMC
All areas of old habilitation except areas developed by Housing Board
Undeveloped areas on both sides of highways within municipal or DA limits
The different fees or charges that are levied during map approval can be categorised into four groups, as elaborated
in Table 10.
Table 10: Fees levied for map approval process by SDA
Labour cess Fees for approval of
maps
Water supply charges Fees for building
permission
On all buildings where
construction cost is above
Rs 10 lakhs
Comprises three different
fees (application & plan
fees, betterment fee and
development fee) charged
during grant of building
permission
Separately charged for
plots and buildings
Charged differentially for
high, low and middle
income groups for water
line charges
Differential charges based
on type of building and
covered area of building
(less than 300 sq m and
more than 300 sq m)
Source: SDA, CRIS Analysis
Since building permissions and planning functions are vested with SDA, the subsequent sections will analyse value capture tools being applied by both institutions.Figure 3: Technical and administrative checks for map approvals for SDA
SDA operates a separate counter for scheme and non-scheme map submissions for residential and non-residential
plots above 300 sq m. Technical scrutiny for such maps includes review of ownership documents, size of adhering /
approach road, area of parcel as per master plan, designated land use as per master plan and need to observe rules
33
related to special zones. Depending on location of development, no-objection certificates (NOC) need to be obtained
from different departments.
Figure 4: Map sanction process for maps > 300 sq m
Inspection procedures for construction permits form an important part of Uttar Pradesh Business Reform Action Plan
2017. GO MS-35/8-3-16-36Vividh/16 dated 2 June, 2016 calls for joint inspection by all departments that are to
provide NOCs along with development authority. Three major activities have been initiated in the state to comply with
the central government’s ease of doing business agenda. These include:
Conducting a single joint inspection by various government authorities responsible for granting construction
permits,
Putting zonal plans online for easy information availability, to assist applicants in developing building plans, and
Allowing third parties to easily verify approval certificates in the public domain for building plan approval.
In accordance with the above, the following time limits have been prescribed state-wide for securing building plan
approvals in Uttar Pradesh.
Figure 5: Steps advocated for easing inspection process and map approval as per Business Reform Action Plan 2017
A summary of all the different LBFT tools levied by SMC and SDA is given below.
Once application is received, forward to
concerned departments with time and date for inspection visit on
15th Day
Within 3 days of inspection to submit
objections/ No objection on the
applications
At DA level, Assistant Engineer to complete
inspection within 7 days of receiving map application
Presentation of detailed report by concerned officer
based on comments from various
departments within 20 days of map
application receipt
34
Table 11: Summary of LBFTs levied by SMC and SDA
Value capture tool Parent Act Rules/ Regulations/
Government order
Levied by
1 Property tax Uttar Pradesh Municipal
Corporation Act, 1959
Uttar Pradesh Municipal
Corporation (Property Taxes)
Rules, 2000
Saharanpur Municipal
Corporation
2 Surcharge on stamp duty
- Tax on deeds of
transfer of immovable
property
Uttar Pradesh Municipal
Corporation Act, 1959; Uttar
Pradesh Avas Evam Vikas
Parishad Adhiniyam,1965; Uttar
Pradesh Urban Planning and
Development Act, 1973; Uttar
Pradesh Special Area
Development Authorities
Act,1986
GO 5-1149/11-2013-
312(268)/2001
Stamp and Registrations
Department
3 Development fees Uttar Pradesh Urban Planning
and Development Act, 1973
Uttar Pradesh Urban
Planning and Development
(Assessment, Levy and
Collection of Development
Fee) Rules, 2014
Saharanpur Development
Authority
4 Compounding charges Uttar Pradesh Urban Planning
and Development Act, 1973
Compounding bye-laws,
2009
Saharanpur Development
Authority
5 Development license fee Uttar Pradesh Urban Planning
and Development Act, 1973
Integrated Township Policy,
2014
Saharanpur Development
Authority
6 Map fees Letter/ Item no.: 47/5 dated
June 15, 2010 signed by Vice
Chairman, Saharanpur
Development Authority
Saharanpur Development
Authority
7 Impact fee Uttar Pradesh Zoning
Regulations
Saharanpur Development
Authority
8 Sub-divisional charges Saharanpur Development
Authority
Source: SMC, SDA, CRIS Analysis
Land-based tools and other regulatory/ administrative tools that are being practiced in Saharanpur, including their
legal framework, tax base, implementation structure, revenue generation and key assessment have been discussed
in detail in the sections below.
3.2.1 Property tax
General description
Property tax is levied by a municipal corporation on properties (including a land and any building constructed thereon)
within the municipal limits of a city. It is an ad-valorem tax, payable annually by the property owner on the ‘annual
value’ of a property. In Uttar Pradesh, property tax comprises following components: (i) general tax, (ii) water tax, (iii)
drainage tax, and (iv) conservancy tax. All municipal corporations in the state are guided by The Uttar Pradesh
Municipal Corporation (Property Tax) (Second Amendment) Rules, 2013.
35
Figure 6 : Methods for self-assessment of property tax in SMC
The Act provides for classification of location of properties, first ward-wise and then within each ward. Properties in
case of Saharanpur are classified on basis of multiple factors. First two criteria are used for classification ward-wise;
a third criterion is used for classification within the wards. Each criterion is described below:
Figure 7 : Classification of properties for property tax collection by SMC
The Act provides for working out minimum monthly rate of rent per unit area (square foot) of the carpet area for every
group of building within a ward or applicable minimum monthly rate of rent per unit area (square foot) of the area for
every group of land. This is fixed, based on two factors: (i) circle rate fixed by collector as per Indian Stamp Act 1899,
and (ii) current minimum rate of rent in the area for such building or land. The Act lays down processes and
consultations for fixing the rent rate and also details procedures to deal with citizen objections.
• Municipal commisioner publishes notice every four years in newspaper for owners to furnish statements in forms B & D
Owners and occupiers
• When owner-occupied or vacant building are given on rent, the owner shall submit fresh form B and D within sixty days
Buidings given on rent
• When 25% addition or reconstruction is done in a building the owner shall submit fresh statements (Forms B & D) within 60 days of completion/ occupation
Construction, reconstruction or addition
Type of road on which building is
situated
Roads with width of more than 24 metres
Roads with width of 12 to 24 metres
Roads with width of less than 12 metres
Type of construction of
building
Pakka building with R.C.C roof or R.B.
roof
Any other pakka building
Kachcha building, that is all other
buildings not covered in above two criteria
Categorisation of building and plots within the wards
Pakka building with R.C.C roof situated on roads having width of more than 24 metres
Pakka building with R.C.C roof situated on roads having width of 12 to 24 metres
Pakka building with R.C.C roof situated on roads having width of less than 12 metres
Other pakka building situated on roads having width of more than 24 metres
Other pakka building situated on roads having width of 12 to 24 metres
Other pakka building situated on roads having width of less than 12 metres
Kachcha building situated on roads having width of more than 24 metres
Kachcha building situated on roads having width of 12 to 24 metres
Kachcha building situated on roads having width of less than 12 metres
36
Corresponding legal provisions
Property tax is levied by the corporation under Section 172, read with Section 173 of MC Act, within a range of 22–
32% of annual value of a property. According to Section 173 of MC Act, property tax comprises following components:
A general tax that can be levied at the discretion of the corporation, at a rate not less than 10% and not exceeding
15% of the annual value of a property;
A water tax that can be levied in areas where water is supplied by the corporation at a rate not less than 7.5%
and not exceeding 12.5% of the annual value of the property;
A drainage tax that can be levied in areas where a sewer system is provided by the corporation at a rate not less
than 2.5% and not exceeding 5% of the annual value of the property; and
A conservancy tax in areas in which the corporation undertakes collection, removal and disposal of
excrementitious and polluted matter from privies, urinals and cesspools at a rate not exceeding 2% of the annual
value of the property.
In terms of Sub-section (2) of Section 173 of the MC Act, property taxes are levied on annual value of a property.
The sub-section further prescribes minimum and maximum rates of each of the property taxes that can be levied
under the MC Act, individually and in aggregate.
As aforesaid, ‘annual value’ of a property is the basis for calculation of property tax that can be levied on the said
property. In this regard, Section 174 read with Property Taxes Rules, specifies the mechanism to determine annual
value of a property, depending on classification of a property (including vacant land) in terms of Rule 4 of Property
Tax Rules. An extract of Section 174 and relevant extracts of the aforesaid rules are given in Annexure 1 of this
report.
While property tax (including all its components) is applicable on all properties in a city, Section 175 of the MC Act
exempts certain properties from the tax – lands used for agricultural purposes, lands with annual value up to INR
360, and properties not within the radius prescribed for the city, from the nearest stand-pipes or other waterworks.
Similarly, Section 177 of the MC Act lists out properties within the municipal limits of a city which are not subject to
the general tax.
Section 176 of the MC Act provides for pooling of proceeds of water, drainage and conservancy taxes and all other
incomes derived by the corporation from activities undertaken in connection thereto and from utilisation of such funds
for improvement of waterworks, drainage and collection, removal and disposal of excrementitious and polluted
matter.
Sections 179 and 180 of the MC Act contain relevant provisions to determine the persons who are liable to pay
property tax.
Revenues for SMC
In Saharanpur, taxes charged as a part of property tax and the rates at which they are charged are as follows:
(a) House tax charged at 10% of annual rental value of a property
(b) Water tax charged at 12.5% of annual rental value of a property
(c) Drainage/ sewerage tax charged at 2.5% of annual rental value of a property
Property tax ranged between 8% to 11% of total revenue income in the analysed years. Following table provides
information on revenues derived from property tax, over the years.
Table 12: Property tax revenues from 2011-12 to 2015-16
Actuals (in Rs crores) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17 (A) CAGR
Property tax 3.92 4.08 4.76 6.22 12.86 35%
37
Actuals (in Rs crores) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17 (A) CAGR
Total revenue income 50.49 82.27 89.18 105.6 113.84 23%
% of total revenue 8% 5% 5% 6% 11%
Source: SMC, CRIS Analysis
Revenue under property tax has increased at CAGR of 35% from 2012-13 to 2016-17, which is higher than CAGR
of total revenue income (23%). Property tax rates were last revised in 2016. Further, a GIS-based database of
properties is being created by the nagar nigam to improve collection efficiency of property tax.
Table 13: Growth in properties in SMC area from 2016-17 to 2017-18
Zones 2016-17 2017-18 Growth Rate
Zone 1 24,971 29,751 19%
Zone 2 33,923 38,573 14%
Zone 3 21,606 23,160 7%
Zone 4 26,861 23,118 -14%
Total 107,361 114,602 7%
Source: SMC
In 2016-17, total properties in SMC numbered 107,361; in subsequent years it has added 7,000 properties in the
year 2017-18. Per capita property tax has increased from Rs 58.02 to Rs 149.88 in four years.
Table 14: Average property tax per property in 2013-14 to 2016-17
In Rs 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17 (A)
Total property tax income (in crores) 4.09 5.30 6.81 13.31
Number of properties (Units) 81,754 82,514 83,167 107,755
Tax per property (Rupees) 500.64 642.32 819.32 1235.12
Table 15 : Property tax collections for SMC
Description 2013-14 2016-17
Population 705,478 887,939
Total property tax collections (in Crores) 4.09 13.31
Total properties 81,754 107,755
Per capita property tax (In Rs INR) 58.02 149.88
Average tax per property (In Rs INR) 500.64 1235.12
The study sponsored by Fourteenth Finance Commission in India (2014) found that per capita income from property
tax in municipal corporations was Rs 708 in 2012-13. Thus, SMC fares below national average. The study found that
municipal corporations in West Bengal garnered Rs 2,351 per capita while their counterparts in 119 Maharashtra
garnered Rs 1,277 in 2012-13. The lowest per capita income from property tax was in Jharkhand and Rajasthan –
Rs 50 or less.2 Among VCF cities of Uttar Pradesh, Saharanpur municipal corporations ranks the lowest in terms of
per capita property tax collection. (See figure below)
http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Cfincom14/others/37.pdf
38
Figure 8: Per capita property tax in VCF cities in Uttar Pradesh (2016-2017)
Key observations:
In Uttar Pradesh, property taxes under MC Act are collected by the corporation for properties lying within the
municipal limits of the city.
Property tax comprises general tax, water tax, drainage tax and conservancy tax.
Property taxes are payable annually on annual value of property.
Funds collected by pooling of proceeds of water, drainage and conservancy taxes and other incomes should be
utilised for improvement of waterworks, drainage and collection, removal and disposal of excrementitious and
polluted matter.
In Saharanpur, house tax, water tax and sewerage tax are collected by the municipal corporation through a single
annual bill.
3.2.1.1 Water tax
General description
As discussed earlier, in Uttar Pradesh, property tax consists of the following components: (i) general tax, (ii) water
tax, (iii) drainage tax and (iv) conservancy tax. Like most cities in Uttar Pradesh, water tax is collected by the municipal
corporation and is applicable on all the assessed properties the city that lie within 100 m from the nearest standpipes
or other waterworks. The municipal corporation generates a combined bill for water tax along with house tax and
sewerage tax. As mentioned earlier, water tax is computed as a percentage of Annual Rental Value (ARV), i.e.,
12.5%, in Saharanpur.
Corresponding legal provisions
Water tax is a part of property tax, and hence, the legal provision remains the same.
Revenue for Jal kal (SMC)
Water tax is the major source of revenue for Jal kal. It contributed around 5% of the total revenue for FY17. The
revenue from water tax has increased at 32.3% CAGR in the period of 2012-13 to 2016-17.
Table 16: Income from water tax for Jal kal, SMC
Amount (Rs crore) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) 2016-17(A) CAGR
Water Tax collections 1.92 1.96 2.41 2.69 5.89 32.3%
391
252
165199
90
603
0
100
200
300
400
500
600
700
Kanpur Jhansi Saharanpur Moradabad Rampur Lucknow
Per capita Property tax
39
Total Collections 50.49 82.27 89.18 105.6 113.84 22.5%
% of total revenue 4% 2% 3% 3% 5%
3.2.2 Other water-related charges
General description and legal provisions
Sub-clause (i) of Clause (b) of Section 55 of the Uttar Pradesh Water Supply and Sewerage Act, 1975, has a provision
for collecting water and sewer charges from all properties lying within the 100 m radius of the nearby water pipeline.
Jal Kal, a city-level department under the municipal corporation, is the nodal institution for levying water-related
charges on properties in Saharanpur. Apart from water Tax, charges are levied for (a) operation and maintenance
expenses, (b) administrative expenses and (c) machinery and instruments expenses by the Jal Kal and include the
following charges:
Water value charge: As per the UP State Government Gazette, 1999, rates for levying water charges has been
fixed with the provision of revising it every two years. The penalty of Rs. 8 per month, applicable on late payments
according to the 1996 amendments to the Safe Drinking Water Act (SDWA), , is not applicable in the city of
Saharanpur. As per the UP State Government Gazette, October 1999, the minimum charges for water are
calculated based on the following broad classification of properties: (a) assessed and un-assessed and (b)
domestic and non-domestic.
Other miscellaneous charges: These charges are levied for new connections, maintenance of old connections,
repairs, etc.
Figure 9: Water-related taxes and charges levied by Jal Kal, SMC
3.2.3 Tax on deeds of transfer of immovable property
General description
This tax is levied by a corporation on an instrument for transfer of an immovable property and is collected along with
the stamp duty chargeable on the said instrument. This is an ad valorem tax calculated on the basis of the
consideration payable for transfer of the immovable property.
An additional 2% stamp duty is levied by the registration and stamp department in Uttar Pradesh. According to the
letter dated September 13, 2013, issued by the chief secretary of the state government, 8% of the total proceeds
40
collected are to be retained by the registration and stamp department and the remaining proceeds are to be shared
between relevant authorities in the following manner:
Figure 10: Distribution of additional 2.0% stamp duty to various authorities
Corporation/authority/council Dedicated urban
transport fund (%)
Special area
development authority/
development authority
(%)
AVP (%) Urban local body
(%)
Development council, AVP, municipal
corporation 0.5 0.5 0.25 0.75
Development authority +
municipal corporation 0.5 0.75 0.75
AVP +
municipal corporation 0.5 0.75 0.75
Development authority + AVP 0.5 0.75 0.75
Development authority 0.5 1.5
AVP 0.5 1.5
Municipal corporation 0.5 1.5
Corresponding legal provisions
Section 172(e) of the MC Act has provision for the corporation to levy this tax, and Section 191 of the MC Act
prescribes the manner in which this tax is to be collected by the state government and then paid to the corporation.
As per Section 191 of the MC Act, the stamp duty applicable on an instrument for transfer of immovable property is
to be increased by 2% of the consideration payable under the said instrument, and the state government is required
to pay the corporation the c four different departments mentioned above.
Revenue for SMC and SDA
For SMC the income from stamp duty surcharge as a percentage of revenue income has varied from 7% to 11%
during the period of FY 2012-13 to FY 2016-17. It has gradually decreased to 3% from the year 2013-14 to 2016-17.
From FY2012-13 to FY 2016-17, additional stamp duty contributions increased rapidly from 13% to 57% of total
revenue income for SDA.
41
Figure 11: Stamp duty contributions as a percentage of revenue income for SMC (FY 2012-13 to FY 2016-17)
Source: SMC, CRIS analysis
Figure 12: Income from stamp duty contributions for SDA (FY 2012-13 to FY 2015-16)
Source: SDA, CRIS analysis
Key observations
This tax is collected along with stamp duty payable on transfer deeds under the Indian Stamp Act, 1899;
The state government is then required to pay the proceeds of the additional tax collected, to the relevant authority;
The provisions contained in the UPD Act for collection of this tax supersede the corresponding provisions in the
MC Act and the AEVP Act.
90% of the amount received by SDA as part of the stamp duty surcharge is to be credited to a separate bank
account known as ‘Infrastructure Development Fund’. This fund is being used for infrastructure development and
beautification of Saharanpur.
0
20
40
60
80
100
120
2012-13 2013-14 2014-15 2015-16 2016-17
Income from 2% of Stamp Duty (In Crores) Revenue Income
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
2012-13 2013-14 2013-15 2014-16
Income from 2% Stamp Duty (in Lakhs) Revenue Income (in Lakhs)
42
3.2.4 Development fee
General description
Development fee refers to the fee levied by an authority for undertaking development works such as constructing
roads, drains, sewer lines and water supply lines. This is collected from a person constructing a building/ structure
in the area where development works have been undertaken by the authority. The development fee has two sub-
components: external and internal development fee3.
Corresponding legal provisions
In Uttar Pradesh, development fee is charged under Section 15(2-A) of the UPD Act. The provision enables a
development authority to levy development fee when applying for development or building permit with respect to any
structure in a development area.
However, as per Rule 3 of the UPD (DF) Rules, development fee is not payable in the following cases:
(i) For a building permit on a plot situated within a layout approved by the authority and for which development
fee or city development charge has already been paid, provided there is no increase in the density;
Explanation:
It is clarified that where an application is submitted for sub-division of a plot or construction of four or more
dwelling units on a plot with three or less pre-existing dwelling units, it shall not be exempted from payment of
development fee;
(ii) For building permit on a plot allotted by the authority for which the cost of development has already been
realised by the authority;
(iii) For development permit on a land for which the applicant is liable to pay city development charge;
(iv) For grant of purchasable FAR or purchasable dwelling units; and
(v) For an application submitted within the validity period for revision of building permit or development permit
granted earlier and for which development fee has already been paid:
Provided that where an application is submitted after the expiry of validity period of building permit or
development permit granted earlier, development fee at the rate applicable on the date of such application
shall be levied after adjusting the development fee paid earlier;
Provided further that in case the land area under revised plan increases, the applicant shall be liable to pay
development fee at the rate applicable on the date of application for such increased land area in accordance
with these rules.
(vi) Where total or partial exemption from payment of development fee has been granted by the state government
under the UPD Act, development fee to the extent of exemption shall not be leviable.
Rule 4 of the UPD (DF) Rules outlines the detailed mechanism for assessment of development fee. An extract of
Rule 4 is presented in Part A of Annexure 2.
Rule 5 of the UPD (DF) Rules lays down the rates at which development fee are levied and refers to the schedule
appended to the said rules. An extract of Rule 5 and the schedule of the UPD (DF) Rules is presented in Part B of
Annexure 2.
As per Rule 6 of the UPD (DF) Rules, development fee shall be paid prior to the grant of permission under Section
15 of the UPD Act.
43
Rule 7 of the UPD (DF) Rules provides that the amount collected as development fee shall be credited to a separate
bank account to be known as ‘Infrastructure Development Fund’.
As per letter dated September 23, 2014, issued by Housing and Urban Planning Section-3, 90% of the proceeds of
the impact fee collected by the development authority has to be deposited in the Infrastructure Development Fund.
Revenues
Development fees form a significant and most important source of revenue income for SDA. The percentage of this
revenue source of total revenue income increased from 3% to 8%, at 12% CAGR between FY 2012-13 to FY 2015-
16.
Table 17: Revenue from development fee for SDA for FY 2012-13 to FY 2017-18
Income (Rs lakh) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
Income from development fee 20.14 13.37 8.23 28.52 12%
Total revenue income 654.27 348.42 334.43 352.58 -19%
% of total revenue 3% 4% 2% 8%
Source: SDA, CRIS analysis
Key observations
As per the UPD Act, development fee is collected by the development authority;
The rules provide for revision of development fee every year by the vice chairman of the authority in conformity
with the central public works department cost index. In case of Saharanpur, the last two revisions happened in
2010 and 2014 through state-wide revision.
90% of the development fee collected is to be credited into a separate bank account known as ‘Infrastructure
Development Fund’.
3.2.5 Land use conversion charges
General description
Land use conversion charges are levied by the development authority for change of land use.
Corresponding legal provisions
Section 38-A (1) of the UPD Act authorised the development authority to levy land use conversion charges (LUCC)
on the owner of a land where the use of land is changed as a result of amendment of master plan or zonal
development plan.
However, as per the second proviso to Section 38-A (1), no land use conversion charges can be levied if the land
use changes as a result of implementation of a master plan or zonal development plan.
Further, as per Rule 3 of the UPD (LUCC) Rules, land use conversion charges are not to be levied if:
The land use changes as a result of implementation of a master plan or zonal development plan;
The land is owned by the central government, the state government or a local authority; and
Total or partial exemption from payment of land use conversion charge has been granted by the state government
under the UPD Act, to the extent of exemption.
Rule 4 of the UPD (LUCC) Rules outlines method and rates for calculation of land use conversion charges.
44
An extract of Rule 3 and Rule 4 of the UPD (LUCC) Rules is presented in Annexure 4.
Further, Rule 8 of the UPD (LUCC) Rules provides that the amount collected under Section 38A (1) of the UPD Act
as land use conversion charges shall be credited into a separate bank account known as Infrastructure Development
Fund.
Further, as per letter dated September 23, 2014, issued by Housing and Urban Planning Department, Section-3,
90% of the proceeds of land use conversion charges collected by the development authority shall be deposited in
the Infrastructure Development Fund.
Revenue of SDA
SDA does not levy land use conversion charges in Saharanpur.
Key observations
Land use conversion charges are levied by the development authority under the UPD Act;
90% of the amount collected as land use conversion charges is to be deposited in a separate bank account
called Infrastructure Development Fund.
Land use conversion charges are not levied in Saharanpur.
3.2.6 Purchasable FAR charges
General description
The term ‘floor area ratio’ or FAR refers to the ratio of total covered area of all floors of a building to the total area of
the plot on which the building is constructed.
Purchasable FAR charges are payable by a person for procuring the right to construct an area which results in the
FAR of the building/ structure reaching beyond the permissible FAR limits for such a building/ structure.
Corresponding legal provisions
In Uttar Pradesh, purchasable FAR charges are levied as per the bylaws framed under the UPD Act.
Para 1.2.9 and 1.2.10 of the aforesaid bylaws define FAR and purchasable FAR, respectively. Further, Para 3.5.2.4
of the bylaws provides the method for calculation of purchasable FAR charges, which is calculated as follows:
Purchasable FAR charges = LE × CR4 × Multiplying factor
LE = FP × 100/FAR
where
LE = Proportionate requirement of land for purchasable FAR
FP = Additional floor area (in sq m) permissible as per purchasable FAR
CR = Current value of the land
Further, the multiplying factor for a land is determined on the basis of the purpose for which the land is proposed to
be used.
Table 18: Multiplication factor for purchasable FAR calculations
Sl. no. Land use Multiplying factor
1. Commercial 0.50
2. Office/ institutional/ mixed 0.45
is will be determined based on the circle rate of the land.
45
Sl. no. Land use Multiplying factor
3. Hotel 0.40
4. Residential (group housing) 0.40
5. Public and semi-public/ community services 0.20
Para 3.5.2.7 of the bylaws provides that the application for purchasable FAR is required to be made at the time of
seeking permission for development of the land. It further provides that the purchasable FAR charges is payable
before the approval for the building map/ plan is granted.
As per Para 3.5.2.8 of the bylaws, purchasable FAR charges are required to be deposited in a separate account by
the authority, which can be used for betterment of infrastructure facilities in the relevant area based on the
recommendation of a committee constituted for this purpose.
Revenue
Request for change in FAR has not been recorded by SDA and no revenue appear to have been incurred for FAR
charges by Development Authority in Saharanpur.
Key observations
In Uttar Pradesh, purchasable FAR charges are collected by the development authority;
Application for purchasable FAR is be made at the time of seeking permission for development of the land;
Purchasable FAR charges are to be paid before the approval for the building map/ plan is granted; and
The said charges are deposited in a separate account by the authority, which is used for betterment of
infrastructure facilities in the area.
3.2.7 Compounding charges
General description
Compounding charges refer to an amount levied by a governmental authority to regularise/ mitigate any violation of
a law committed by a person.
In the context of construction and development of buildings, compounding charges levied by a development authority
for any violation of development laws and regulations governing the relevant area.
Corresponding legal provisions
Section 32 of the UPD Act authorises the development authority to levy compounding charges on a person who
commits any violation of the provisions of the UPD Act under the head ‘composition fee’. The text of Section 32 is
as follows:
“Section 32 - Composition of Offences
(1) Any offence made punishable by or under this Act may either before or after the institution of proceedings, be
compounded by the Vice-Chairman (or any officer authorised by him in that behalf by General or Special order) on
such terms, including any term as regards payment or a composition fee, as the Vice-Chairman (or such officer) may
think fit.
(2) Where an offence has been compounded, the offender, if in custody, shall be discharged and no further
proceedings shall be taken, against him in respect of the offence compounded.”
In terms of Section 32, an offence can be compounded either before or after institution of the proceedings against a
violation committed by a person. Further, sub-section (2) of Section 32 provides that when an offence under the
UPD Act is compounded under Section 32, the person who committed the offence shall stand discharged and no
proceedings shall lie against the said person.
46
As per the letter dated September 23, 2014, issued by Housing and Urban Planning Department Section-3, 50% of
the proceeds of composition/ compounding fee collected by the development authority are to be deposited in the
Infrastructure Development Fund.
Revenue
Compounding charges income forms roughly 16% to 24% of total revenue income of SDA, and has been decreased
over the years. In the reviewed period, compounding income recorded a negative CAGR.
Table 19: Compounding charges income from FY13 to FY16
Income (Rs lakh) FY13 (A) FY14 (A) FY15 (A) FY16 (A) CAGR
Income from compounding charges 106.36 104.54 72.99 85.63 -7%
Total revenue income 654.27 348.42 334.43 352.58 -19%
% of total revenue 16% 30% 22% 24%
Source: SDA, CRIS analysis
Key observations
In Uttar Pradesh, compounding charges are collected by the development authority under the UPD Act`;
50% of the proceeds of compounding charges collected are to be deposited in the Infrastructure Development
Fund constituted under the UP SHH Policy.
Compounding charges is a major source of income, 16% to 24% of total revenue income, for SDA.
3.2.8 Development licence fee
General description
This fee is levied by an authority on a private developer for grant of a licence for assembly and development of a
land within an area.
Corresponding legal provisions
As per the Section 2 (hhh) of the UPD Act, licence fee is levied on a private developer seeking licence for assembly
and development of land within the development area.
Section 39-B of the UPD Act provides that the development authority may grant a licence for assembly and
development of lands in the development area to a private developer.
Section 39-C provides for the levy of development licence fee by the development authority for grant of licence to a
private developer under Section 39-B at rates and in a manner as prescribed.
A similar licence fee is levied under the Integrated Township Policy, 2014, for granting a licence for development of
a township.
Table 20: Categories for development licence fee under Integrated Township Policy
Population of the area Amount of the fee (per acre)
10,00,000 or more Rs 1,50,000
5,00,000 to 10,00,000 Rs 1,00,000
Up to 5,00,000 Rs 50,000
47
Revenue
Licence fee forms a miniscule part of revenue income (0.07% to 0.11%) of SDA, which is only 0.003% of the total
revenue income.
Key observations
Development licence fee is levied by the development authority under Section 39-C of the UPD Act;
This fee is levied for the grant of licence for assembly or development of land.
Income from licence fee does not have a significant contribution to the revenue of SDA.
3.2.9 Map fee
General description
Any construction in an area within the jurisdiction of an authority is allowed only if the map of construction is
sanctioned by the authority. The fee levied by the authority for scrutinising the maps submitted is referred to as map
fee.
Corresponding legal provisions
Letter no. 1267/C.E./2016-17 dated May 7, 2016, prescribes the rate of map fee payable both at the time of
submission of map to the development authority and at the time of approval/sanction of maps by the authority.
The charges mentioned in the letter are applicable to both residential and non-residential properties and shall be
payable for one year in lump sum at the time of approval of the map.
At the time of collection of the map fee, water charges for a period of one year are also collected.
Revenue
The share of map fee is negligible compared with other revenue sources. It ranges from 1% to 2% of total revenue
income for SDA. As observed, annual building permission for both residential and commercial properties are very
less. Permission of both 104 are given over a decade.
Table 21: Income from map fee (application & plan fees) from FY13 to FY16
Income (Rs lakh) FY13 (A) FY14 (A) FY15 (A) FY16 (A) CAGR
Income from application & plan fee 5.67 3.08 6.02 6.31 4%
Total revenue income 654.27 348.42 334.43 352.58 -19%
% of total revenue 1% 1% 2% 2%
Source: SDA, CRIS analysis
Key observations
Map fee (application & plan fee) is levied for sanction of a building map, and is collected by the development
authority;
The water charges for one year shall be payable in lump sum at the time of approval of the map; and
90% of the proceeds collected by the development authority as map fee are to be deposited in the Infrastructure
Development Fund.
The number of building permissions has been fluctuating over the last couple of years indicating the possibility
of people not applying for permissions as a rule or a possible documentation issue at the SDA’s end.
48
3.2.10 Impact fee
General description
As the name suggests, impact fee is levied to set off the impact of designating an area as an area of high end use.
An authority may, on an application received from any person, designate an area to be a high end use zone. Impact
fee is levied by such authority to set off the impact of such an action on the means of transport and other facilities
available in such areas.
Corresponding legal provisions
In Uttar Pradesh, zoning regulations provide for the levy of impact fee. In terms of the aforesaid regulations, the
impact fee varies from 25% in general cases to 50% in cases where a special permission is sought by the applicant.
Zoning regulations also contain a reference to a government order number 3712/9-A-3-2000-26 L.U.C./91 dated
21.08.2001 and other related orders as the basis for collection of impact fee.
Zoning regulations list the cases exempt from the levy of impact fee, which broadly cover the generally permissible
activities in the constructed areas, public welfare activities carried out by governmental and semi government
agencies in mixed land use zone, temporary permitted activities in major land use zones, and activities permitted
under various state government policies. It also sets out the considerations for the grant of approval by the
Development Authority.
Through letter dated September 23, 2014 issued by Housing and Urban Planning Section, 90% of the proceeds of
the impact fee collected by the Development Authority is to be deposited in an ‘Infrastructure Development Fund’.
Table 22: Income from Impact fee from FY13 to FY16
Income (Rs lakh) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
Income from impact fees 6.48 6.32 16.54 18.50 42%
Total revenue 654.27 348.42 334.43 352.58 -19%
% of total revenue 1% 2% 5% 5%
Source: SDA, CRIS Analysis
The impact fee (or prabhav shulk in Hindi) collected by SDA has grown at 42% CAGR over four years between 2012-
13 and 2015-16 and its contribution to the total income has grown up to 5%.
Key observations
In Uttar Pradesh, impact fee is collected by the Development Authority in accordance with the zoning regulations
90% of the amount collected as impact fee has to be deposited in the ‘Infrastructure Development Fund’
The impact fees contributes a significant amount in the total revenue of the Development Authority
3.2.11 Mutation charges
General description
Mutation charges are levied by the Development Authority for recording the change in title of a property allotted by it
in the name of the transferee, on an application made by such transferee.
Corresponding legal provisions
Mutation charges are defined under the Urban Planning and Development (UPD) Act to mean the charges levied by
the Development Authority upon the person seeking mutation in his name of a property allotted by the Authority to
another person.
49
Section 15(2A) of the UPD Act empowers the Development Authority to levy mutation charges at such rates and in
such manner as may be prescribed.
Key observations
Mutation charges are levied by the Development Authority under Section 15(2A) of the UPD Act
The rates and manner of collection of mutation charges are prescribed from time to time
In Saharanpur, no requests for mutation have been recorded by the SDA between FY 2012-13 to 2015-16 and
no income has been earned in the period from this tool.
3.2.12 Stacking charges
General description
Stacking fees refers to the charges levied on a person for keeping building material on a public street or at a public
place owned by the government.
This fee is in the nature of usage charges levied in the event of use of public land by a person for the purpose of
keeping or storing any building material during the period of construction. Stacking fees is also referred to as “malva
charges”.
Corresponding legal provisions
Section 2(kk) of the UPD Act, defines ‘stacking fees’ as fees levied upon the person or body who keeps building
materials on the land of the Development Authority or on a public street or public place.
A Development Authority constituted under the UPD Act is empowered to levy ‘stacking fees’ under Section 15(2-A)
of the UPD Act which reads as under:
(2-A) The Authority shall be entitled to levy development fees, mutation charges, stacking fees and water fees in
such manner and at such rates as may be prescribed.
Provided that the amount of stacking fees levied in respect of an area which is not being developed or has not been
developed, by the Authority, shall be transferred to the local authority within whose local limits such area is situated.
However, as indicated above, the proviso to the said Section 15(2-A) mandates that the stacking fees collected by
the Development Authority from an area which is not being developed or which has not been developed by the
Development Authority, shall be transferred to the urban local body in whose jurisdiction such area is situated.
Revenues
No income from stacking fees has been recorded by the Development Authority.
Key observations
In Uttar Pradesh, the stacking fee under the UPD Act is collected by the Development Authority
The amount of fee collected for an area not being developed or not developed by the Development Authority
shall be transferred to the urban local body in whose jurisdiction such area is situated
Budgets of the Development Authority do not reflect a clear head of stacking fees for the period FY 2012-13 to
FY 2015-16, and no income has been earned in the period from this tool
3.2.13 Permission fees
General description
The term ‘development permit fee’ refers to a fee charged by the Prescribed Authority to scrutinise the applications
for permission to undertake any development in an area.
50
Similarly, a ‘building permit fee’ is a fee charged by the Prescribed Authority to scrutinise the applications for
permission to erect, re-erect, demolish, or make any material changes to a building in an area.
Corresponding legal provisions
In terms of Section 6 read with Section 7 of the BO Act, every person intending to carry out any development or
excavation or erection or re-erection or any material change in any building or laying out means of access to a road
in the regulated area, shall obtain the prior written permission from the Prescribed Authority. The activities specified
in Section 6 have further been categorised into the following under the BO Rules for the purposes of levy of fees:
Development activities for which a development permit shall be obtained; and
Erection, re-erection or making any material change in a building for which a building permit shall be obtained.
Section 19 of the BO Act empowers the State Government to make rules to levy fees on application for grant of
development permits and building permits.
As per Rule 5(1) of the BO Rules, an application for development permit shall be accompanied by a fee set out in
sub-rule (2) of Rule 5, an extract of which is given in Part A of Annexure 5.
As per Rule 13(1) of the BO Rules, an application for building permit shall be accompanied by a fee set out in sub-
rule (2) of Rule 13, an extract of which is given in Part B of Annexure 5.
Further, section 15-A of the BO Act provides that the fees received by the Prescribed Authority along with the
applications for grant of development permit and building permit, shall be credited to the fund of the Corporation.
However, since the coming into force of the UPD Act, the operation of the provisions of the BO Act (to the extent
such provisions are contradictory to the UPD Act) has been suspended until the Development Authority constituted
under the UPD Act is dissolved.
Key observations
The permission fee under the BO Act is categorised into development permit fee and building permit fee
The permission fee is levied and collected by the Prescribed Authority
The amount collected by the Prescribed Authority is to be credited to the fund of the Corporation
The operation of the provisions of the BO Act (to the extent they contradict the provisions of the UPD Act) has
been suspended by the coming into force of the UPD Act
3.2.14 Freehold charges
General description
Freehold charges refer to the charges collected by an authority to convert a land from leasehold to freehold. The
owner of a freehold land owns such land, as opposed to the owner of a leasehold land where the land is leased by
the authority for a long duration to the owner.
Corresponding legal provisions
In Uttar Pradesh, conversion of a leasehold property to a freehold property is governed by a Freehold Policy. The
aforesaid Freehold Policy finds its genesis in the UPSHH Policy.
Para 5.1.2(1) sets out the rates of freehold charges and conditions for conversion of land parcels falling under any
of the Development Authority’s or Housing and Development Board’s schemes. Similarly, Para 5.1.2(2) sets out the
rates of free hold conversion charges and conditions applicable to other land parcels or buildings (except nazul land).
Para 5.1.3 of the Freehold Policy lists other conditions for the said conversion.
Further, Para 5.1.4 of the said policy describes the procedure and document requirements for the aforesaid
conversion.
51
Table 23: Freehold Charges FY 2012-13 to FY 2015-16
Income (Rs lakh) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
Income from freehold charges 0.64 5.83 4.77 15.00 187%
Total revenue 654.27 348.42 334.43 352.58 -19%
% of total revenue 0.1% 2% 1% 4%
Source: SDA, CRIS Analysis
Budget reflects a head for freehold charges which was insignificant as a contributor to total revenue in 2012-13 but
has grown rapidly at 187% CAGR, with a project at Transport Nagar by the DA.
Key observations
The Freehold Policy in UP provides for a levy of freehold conversion charges, when land is converted from
leasehold to freehold
The Freehold Policy further lists the conditions for such conversion and the fee applicable to different brackets
of land
Key takeaways
The above analysis indicates that existing LBFTs can be divided into property tax, stamp duty contributions, and
town planning and building related charges. The town planning and building related charges are concentrated with
the SDA. Property tax is being administered by the SMC.
The only LBFT available to SMC is property tax. Additionally it receives partial contributions from stamp duty
collections. SDA also passes on transfer charges when their colonies are transferred to SMC. Property tax is
computed on number of variables including carpet area/ land rate (in case of plots) and monthly rental rate fixed
by SMC. There is a provision for self-assessment of payment of tax for land and buildings, where the owner
himself determines the property tax. Based on type of road access and nature of construction, the buildings are
arranged in nine different categories. The vacant lands are arranged in three categories based on road access.
An additional 2% stamp duty is levied by the Stamp Duty and Registration Department in Uttar Pradesh. After
deducting 4% of the duty received in the financial year for additional expenditure and 4% percent for collective
expenditure, the remaining amount is to be distributed among various departments. Stamp duty contributions
form a significant part of SMCs revenue income.
SDA levies most of the value capture tools related to building planning and construction. All the tools including
development fee, compounding, map fees, impact, etc., are one time tools.
Of the value capture tools levied by SDA, development fee fetches highest revenue despite being a charge not
linked to market value/circle rates.
90% of fees received for development fee, development charges, and impact fees, and 50% of income collected
for compounding, is collected in the Infrastructure Development Fund. 80% of this is mandatorily used to fund
capital expenditure based on approval from local committee.
Development fee and compounding charges show highest CAGR in compendium with 63% and 35% growth
rates. Of these two, only compounding charges are related to market values for certain type of cases.
Table 24: Key features of LBFT in Saharanpur are captured in the table below:
52
Table 24: Key features of LBFT in Saharanpur
Tool Tax base/ Computation
factors
Jurisdiction Recurring/ onetime Legal framework Tax levier Transfer mechanism CAGR % of revenue
income
1 Property tax ARV based method (locality
based rates for all wards
based on combination of
access roads & construction
type 5
SMC Annual collections Uttar Pradesh Municipal Corporation Act,
1959
SMC Not applicable 34% 59%
2 Tax on deeds of immovable
property
Rates based on market value
guideline
SMC +
SDA/AVP
One time Uttar Pradesh Urban Planning and
Development Act, 1973 and Uttar Pradesh
Municipal Corporation Act, 1959
Registration and Stamp
Department
After deducting 8% of duty, remaining amount
from surcharge is to be distributed among
various departments
5% &
-19% (FY15 and
FY16, respectively)
28% & 16% (FY15
and FY16,
respectively)
3 Development fee
(includes external
development charges and
internal development charges)
Area based rate (Rs per sq
m)6
SDA One time Uttar Pradesh Urban Planning and
Development Act, 1973
SDA All collections credited to separate bank
account “Infrastructure Development Fund” of
Development Authority
12% 8%
4 Compounding charges Computation matrix is based
on multiple factors – area of
plot, type of violation, existing
and permissible land use and
circle rates
SDA One time Uttar Pradesh Urban Planning and
Development Act, 1973
SDA 50% of collection credited to separate bank
account “Infrastructure Development Fund” of
Development Authority
-7% 24%
5 Development licence fees Area (per acre)7 SDA One time Uttar Pradesh Urban Planning and
Development Act, 1973
SDA Not applicable Applicable from
FY15 to FY16
0.003%
6 Map fee
(Application & plan fee)
Per application8 SDA One time Uttar Pradesh Urban Planning and
Development Act, 1973
SDA Not applicable 4% 2%
7 Impact fee Area (in sq m) and circle rate
of land along with land use
change9
SDA One time Uttar Pradesh Zoning Regulations SDA 90% of collection credited to separate bank
account “Infrastructure Development Fund” of
Development Authority
42% 5%
8 Stacking charges Area based SDA One time Uttar Pradesh Urban Planning and
Development Act, 1973
SDA Transferred to SMC in case of construction
within its jurisdiction
9 Permission fee Per application (fixed cost) DA/ MC or
SADA
One time Uttar Pradesh (Regulation of Building
Operations) Act, 1958
Prescribed authority Credited to fund of Corporation
10 Free hold charges Area based linked with % of
existing market value/circle
rates
SDA/ AVP One time Uttar Pradesh State Housing and Habitat
Policy, 2014 and Uttar Pradesh Freehold
Policy, 2014
SDA/ AVP or any other
Govt. depts. that own land
Not applicable 187% 4%
11 Sub divisional charges Area based SDA One time Building Bye-Laws 2008 SDA Not applicable -6.3% 4%
12 Betterment levy charges Area based SDA One time SDA Not applicable -4.8% 3%
Based on type of road access and nature of construction, the buildings are arranged in nine different categories. The vacant lands are arranged in three categories based on road access.
6 Development fee is assessed and collected on basis of gross area of land parcel multiplied by the rates out by authority and the multiplication factor based on area of land parcel 7 Differential slabs depending upon the population of the township area 8 Buildings are categorised into 6 major groups, which are further sub categorised as per covered area to collect fixed fees for application. Map fee is fixed for all different categories of buildings and site development. 9A simple matrix has also been devised for the calculation of fee (impact fee) under the zoning regulations.
53
Infrastrucure investment and value creation
Overview of infrastructure investments in Saharanpur
Saharanpur has witnessed immense infrastructure development in the past decade. Organised and planned
development of roadways, physical infrastructure, residential and commercial development, entertainment zones,
educational institutions, and other public amenities, have gained pace in the past couple of years. Preliminary
assessments of Jal Kal Department of Municipal Corporation indicate that ~65% of the city area is covered by water
supply network. This area accounts for 52% households in city wards which have access to tap-water. The remaining
48% depend on bore wells (ground water) as the main drinking water source. More than 70% households have their
sources of drinking water within or near their premises. More than 75% households in the city wards use electricity
as their primary source of lighting and ~60% have access to household toilets.
Table 25: Water supply service level benchmark for Saharanpur
Indicator Benchmark Value (FY 2016-17)
Coverage of water supply connections 100% 52%
Per capita supply of water at consumer end 135 LPCD 134 LPCD
Extent of non-revenue water 20% 26%
Quality of water supplied 100% 100%
Coverage of toilets 100% 76%
Source: SCP, Jalkal (SMC)
New Saharanpur - the part of the city on the other side of Paundhoi river - which started to develop at a much later
stage, has good infrastructural facilities such as well-planned colonies (Haqiqat Nagar, Sharada Nagar, Transport
Nagar etc.), gated communities (Church Compound, New Maida Mill Colony, etc.), road networks, water and
sanitation facilities, presence of organizsd retail and other social amenities. But the Old Saharanpur area that
comprises the older parts of the city established during the reign of Sufi Saint Shah Haroon Chishti, suffers from
unsatisfactory basic facilities.
Saharanpur is expected to witness improved infrastructure in the future, owing to systematic focus of the Central
Government on urban infrastructure through various flagship programmes such as AMRUT, Swachh Bharat Mission,
Smart City Mission, etc. The past investments and future growth drivers in Saharanpur have been categorised as
follows:
Table 26: Project impact areas of key flagship projects in Saharanpur
Project
Total capex (Rs
crore)
Start
year
End year Beneficiary
HHs
Ward numbers
impacted
Impact
area sq
km
Per capita
investment
envisaged (Rs)
SCM (ABD) 895.25 2018 2022 20,000 Ward 11, 12, 16-
25, 41, 42, 52
5.09 (1260
acres) 59,680
SCM (PAN CITY) 754.78 2018 2022 70,000 All Wards 43.00 10,698
AMRUT 166.86 2015 2020 40,000 30 Wards 20.00 4800
SBM 1.34 2014 2019 87,000 All Wards 43.72 18
Source: SCP, SAAP, Updated final DPR, MOM of Infrastructure Committee, dated 10.08.2017
The key aspect of long term and short term solutions regarding water supply, sewerage, and drainage infrastructure
shall be addressed through Central flagship schemes such as AMRUT. The water demand shall be assessed based
54
on land use and projected population. Various water sources, i.e., surface water, ground water abstraction, and reuse
of treated effluents for non-portable demands will be considered and analysed for catering to the water demands of
the area. An option of blending ground water with surface water has been put forth by proposing a cess for long term
reliability.
1. Smart City Mission: Saharanpur smart city covers an area of 5 sq km for area based development. It is primarily
focussed on establishing a self-sustainable city with an emphasis on public services and urban mobility. The pan
city proposals envisages solid waste management and robust IT connectivity. Together, the Area Based
Developmetn (ABD) & pan city proposals cost Rs 1650 crore.
Table 27: Project categories under Smart City Mission
Sl.No. Modules Projects Project cost
(Rs cr)
1 Enhancing economic growth
Expansion of Common Facility Centre
145.08 Composite Export Promotion Zone
Skill Development & Incubation Centre
Business & Commercial Hub
2 Improved quality of life
Enhanced Power Supply with Smart Metering
1323.4
Improved Water Supply & SCADA Monitoring
Solid Waste Management (Sensor Based Bins/GPS vehicles)
Road Geometry Improvement
NMT & Cycle Track
Solar Power Generation
River Rejuvenation
Modernisation of Schools & Colleges
Biogas Plant
Affordable Housing
Natural Gas Distribution Network
Utility Ducting
3 Responsive governance
SAHART Central Control & Command Centre
128.51 E-kisoks Services
Vending Zones
SAHART app
4 Increased safety and security
Road Signages / Red Light Violation cameras & Traffic Diversion
Sensors
4.98 Trauma/First Aid Centre
CCTV Surveillance System
Installation of Fire & Safety measures
5 Soft costs Overheads such as surveys and investigations, preparation of
DPRs, project management and supervision 48.06
Source: SCP Round-3, 2017
55
2. AMRUT: The State Level High Power Steering Committee (SHPSC) has released a sum of Rs 8.81 lakh for
green park/spaces to Saharanpur Nagar Nigam in October 2016 and the cost of projects for FY17 is estimated
at Rs 55 lakh. The components being addressed through AMRUT in Saharanpur are: sewerage and septage
management with a sanctioned project cost of Rs 108.63 crore jointly for the years FY16 and FY17, and water
supply at a cost of Rs 29.30 crore in FY16 and Rs 29.01 crore in FY17 (Progress Report, SMC).
3. Swachh Bharat Mission: The key components for the implementation of the Swachh Bharat Mission are
construction of toilets and solid waste management, for which an investment of Rs 134.78 lakh is envisaged.
Apart from developing physical infrastructure, it also aims at information, education, and communication about
the mission. The target for individual household level toilets is envisaged at 987, with a provision of Rs 8000 per
toilet. The estimated project cost for this would be Rs 80 lakh. On the other hand, the target for public/ community
toilets is 200 seats, with a revised provision of Rs 98,000 per seat. The older provision per seat was Rs 52,000.
The cost for public/community toilets is Rs 2 crore. The second component of the mission is solid waste collection
and management. For this, new prospective suppliers/partners of Municipal Corporation for the city wide project
comprising 60 wards have been roped in. Muskaan Jyoti (as CSR programme of ITC Ltd), has carried out door
to door collection of solid waste in 30 wards, while two non-profit organisations, Samarpan and Crazy Greens,
have done so in 15 wards each. Machinery/equipment is being provided by Saharanpur Nagar Nigam. Further,
to extend its efficiency in managing sewerage, construction of new STPs (of 50 and 32 MLD) to control the
pollution level in Paondhoi and Dhamola rivers is also being considered. DPRs have been prepared and shall be
submitted under AMRUT, derived from various departments of Municipal Corporation.
4. Pradhan Mantri Awas Yojna (PMAY): PMAY is being implemented in Saharanpur where the district urban
development agency (DUDA) has carried out surveys in SMC and other Nagar Palikas (NPs) of Saharanpur
District. Within the SMC area, 2,000 applications have been received and the survey in underway. An amount of
Rs 5 lakh has been released for assistance to vendors in creation of vending zone.
5. Electricity supply under Integrated Power Development Scheme (IPDS): Various activities including
renovation and modernisation, underground cabling of 33KV of about 2 kms and 11KV (21 kms), and setup of
transformers are being carried out under IPDS scheme at a cost of Rs 21 crore. The state has signed MoUs
with the intent of improving finances of electricity distribution companies and meeting increased demand. It
includes components such as feeder metering, distribution converting metering, consumer indexing and GIS
mapping, smart metering, and tackling aggregate technical and commercial losses.
Roads and Connectivity
1. Saharanpur-Muzzafarnagar Expressway: The Uttar Pradesh State Highway Authority (UPSHA) initiated the
four-laning of Saharanpur-Muzzafarnagar section of SH 59. The 80 km-long project will connect the cities of
Saharanpur and Muzzafarnagar in UP. At least a dozen bridges and underpasses are proposed to be constructed
as part of the expressway at an estimated cost of Rs 1,000 crore. The main source of income for UPEIDA from
the expressway shall be the revenues from tolls and wayside amenities (such as service stations, restaurants,
petrol pumps, shopping arcades, toilet blocks, etc.). The construction of the expressway is yet to start as the
road inventories are underway.
2. Highways in the State: The State Government, through UPSHA, is undertaking upgradation/ maintenance of
state highways in UP under public-private partnership mode on design, build, finance, operate, and transfer
(DBFOT) basis. Presently, as many as 19 state highways in the different parts of the state have been undertaken
by the Authority with a total length of about 2200 km, at an estimated cost of ~Rs15,500 crore. The Authority is
planning early implementation of these state highways. The developers for four state highways containing a total
length of 484 km have been selected. The consultant for the remaining projects has already been selected and
feasibility and viability studies for these projects are underway. The Delhi-Saharanpur-Yamunotri Road will
connect the Uttarakhand border on DBFOT basis, at an estimated investment of Rs 1718.35 crore. This would
enhance the trade and commerce connectivity and the tourist inflow of the city of Saharanpur.
3. State/National Highways: The city is located on National Highway 73. It is also a junction point of two state
highways, viz., SH 57 (Delhi-Saharanpur-Yamnotri Highway) and SH 59 (Saharanpur-Muzaffarnagar). Both
56
these state/national highways have been proposed to be four laned (from two lane at present) and work for
the same in underway.
4. Bypass: To reduce congestion in the core city and prime built-up area and to bypass traffic, a 9 km four lane
bypass road has been proposed. The construction and laying of road is underway. This would further heighten
real estate market activity along the proposed corridor.
Residential projects
The city has seen a few projects listed in the recent past by the Development Authority and the Awas Vikas. The
government of India has implemented the Real Estate (Regulation and Development) Act 2016, or RERA, and all of
its sections came into force on May 1, 2017. An online registration platform was launched for the state of Uttar
Pradesh, where builders could register their projects and get a RERA registration number. Recently three projects
by Parasvnath Developers at various locations have been registered for Saharanpur City.
Past and recent investments, along with the potential growth in the city, shall be evaluated for their impact on the
local real estate markets.
Overview of real estate market trends
The city is strategically located and serves as a gateway to the five adjoining states. Saharanpur is home to
educational institutes like the Central Pulp and Paper Research Institute, Institute of Paper Technology, National
Wood Craft Design and Development Centre, Photo and Picture Framing and Technology Up-gradation Centre,
Botanical Research Institute, Soil Conservation Training Centre, and the one of its kind Military Remount and Training
School.
The trend in physical growth over the years has been linear development along the National Highway and the State
highway passing through the city. The town serves as an important transport node connecting five different states.
The anticipated physical growth in the coming years and a growing urban population are likely to exert pressure on
the existing natural resources, necessitating interventions.
4.2.1 Land use pattern
The overall functional morphology of Saharanpur can be analysed through the axial growth in various directions of
the major roads of Saharanpur city. The developed municipal area of Saharanpur was 2328.32 Hectares (H)a in
2001, wherein the total residential area covers up to 26%, while commercial (trade and commerce and industrial)
covers up to 10% of the total area. A review of the master plan for Saharanpur has identified a few considerations
regarding the progress of this aforesaid project. Development phasing is studied in details as the success of any
development is highly dependent on the location of major activity within the master plan and the relationship with
surrounding uses. The location of mixed land use parcels in the overall master plan is not accompanied by any clear
locational justification as the mixed use areas allow for a wide range of activities, including commercial offices, retail
and residential use at significant development densities, their location being critical to the overall functioning of any
urban area.
Table 28: Land use pattern of Saharanpur
Land use category 2001
Area in Ha Total percentage
Rural population 129.60 5.57
Current built-up area 701.20 30.10
Residential 602.25 25.87
Trade and commerce 83.37 3.58
57
Land use category 2001
Area in Ha Total percentage
Industrial 152.60 6.58
Public and semi-public 51.10 2.18
Community facilities 145.35 6.28
Parks and green spaces 82.00 3.52
Traffic and transport 164.00 7.04
Forest 129.63 5.57
Water bodies 55.52 2.38
Burial ground 24.70 1.06
Sewage treatment plant 7.00 0.30
Total 2,328.32 100.00%
Source: Master Plan, 2021 Saharanpur
4.2.2 Demand-supply analysis
The data from SDA suggests that over 100 building permission applications were sanctioned over a decade.
However, discussions with realtors and other agencies suggest that the actual number of building permissions
granted would be higher as some of the localities (mohallas) in prime locations in the city are saturated in terms of
land and buildings. There is no correlation between the number of permits sanctioned in the past decade and the
buildings that have come up in the past decade throughout the city. This is indicative of violations of the building
bylaws and regulations, with people either not applying for permissions or the development authority being unable to
record building permissions sanctioned.
The following table illustrates the total income received from the building department of Saharanpur Development
Authority.
Table 29: Income from charges pertaining to building permissions sanctioned
(in Rs lakh) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
(Actuals)
Income from Building Dept. 5.67 3.08 6.02 6.31 4%
Total revenue income 654.27 348.42 334.43 352.58 -19%
Percentage of revenue income 1% 1% 2% 2% 27%
Source: SDA, Saharanpur
The increase in income from building permissions and other charges on new construction can be inferred from the
tables below:
Table 30: Revenue generated from development charges
(in Rs crore) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
(Actuals)
Income from development charges 20.14 13.37 8.23 28.52 12%
Total revenue 654.27 348.42 334.43 352.58 -19%
Percentage of total revenue 3% 4% 2% 8% 38%
58
The increase in revenue through various tools such as application and planning, betterment, license, impact and
development fees may be attributed to the rates associated with these tools being revised regularly, which is reflected
in the subsequent increase in revenue.
In order to understand the demand pattern in the city, the revenue from stamp duty and the registration details have
been assessed on the basis of the table given below:
Table 31: Number of transactions and the revenue generated for Saharanpur District from FY 2012-13 to 16-17
2012-13 2013-14 2014-15 2015-16 2016-17 CAGR
No. of sale deeds/ registrations 46,263 43,651 40,127 36,411 29,728 -10%
Revenue from stamp fee (in
crore) 176.53 191.72 201.48 204.28 181.34 1%
Table 31 illustrates that the income from stamp fees for FY 2012-13 and FY 2016-17 shows a slight rise in the
revenue trend, whereas the number of registrations has been decreasing tremendously over the years at a CAGR of
-10%. The income is a linear graph as seen in the CAGR by 1%. This can be attributed to market forces at play and
the effect of demonetisation, between FY 2015-16 and FY 2016-17, for the district of Saharanpur.
4.2.3 Market value trends
It has been observed that certain areas in Saharanpur have witnessed a relatively rapid and denser development in
terms of new construction (both residential and commercial), compared to other parts of the city. These include areas
such as Court Road, Railway Road, Jain College Road for commercial development and Raiwala, Vivek Nagar and
Mission Compound for residential development.
Table 32 : Major areas of commercial development
Locality Names Existing Circle Rates per
sq m (2017)
Existing Market Rates per sq
m (2017)
Court Road 90,000 100000-110000
Railway Road 59,000 60000-75000
Jain College Road 45,500 50000
Paper Mill Road 24,000 20000-35000
Source: Private developers, Saharanpur
From the table above, it is clear that market rates are slightly higher than existing circle rates along the major roads
in the city, due to the huge investments in the commercial sector as well as the new residential plotted development.
Table 33: Major areas of residential / gated community development
Locality names Existing circle rates
(per sq m) / 2017
Existing market rates
(per sq m) / 2017
Raiwala 69,000 75,000-100,000
Awas Vikas (Yojna No.1 Vivek Nagar) 59,500 62,000-65,000
Mission Compound 34,000 50,000
Gill Colony 28,000 40,000-50,000
Hasanpur 17,700 40,000
Ambala Road 45,600 50,000-60,000
59
Source: Private developers, Saharanpur
Based on the primary analysis and the rates from the property markets study, the table above highlights the areas
that have witnessed high market value due to rapid residential development in recent years. The housing schemes
developed by the Saharanpur Development Authority i.e Transport Nagar and the Awas Vikas at Vivek Nagar
illustrate the significant growth in market value. A medical college and Air Force station have been set up in the city
periphery on Ambala Road that is anticipated to possess significant growth potential in the near future.
Key takeaways
The above analysis indicates that the areas that have benefited from the economic development of the city in the
past few years are concentrated largely in the centre of the city. These areas have witnessed denser growth in the
real estate market as compared to the rest of the city.
Review of basic services shows there are substantial gaps in water and sanitation, and these will require major
investments in news projects and improvement in existing processes. The SAAP alone estimates investments of
166.86 crore for access to water and sanitation
Development of various residential and commercial centres in the city, coupled with development under various
flagship programmes and schemes, have led to a steady increase in real estate prices. The areas that have
witnessed a boom in residential and commercial development in the past few years are Raiwala, Mission
compound, Gill colony, Hasanpur, Ambala Road, Court road, Jain college road, paper mill road, railway road etc.
For these areas, the circle rates fixed by the Stamp and Registration Department are almost parallel to the
prevailing market prices.
The upcoming investments in the city are flagship programs by the central government such as the Smart City
Mission. As the city was shortlisted in the top 100 cities, having received approval from the state in Round 3 with
the proposal under preparation, AMRUT and Swachh Bharat Mission are ongoing. Other developments that have
the potential to impact real-estate prices in the city are the the schemes developed by Awas Vikas Parishad and
DUDA. Additionally, over three upcoming real-estate projects in Saharanpur district have been registered on
RERA. These projects will have a positive impact on the real estate market in the impact areas of the projects.
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Existing land-based fiscal tools efficacy in value
capture financing
Land value capture refers to a set of mechanisms used to monetise the increase in land values that arise in the
catchment area of public infrastructure projects. In this section, assessment of the effectiveness of the existing LBFTs
in capturing the growth in property values is studied by assessing their past performance vis-à-vis the growth in real
estate market value. This chapter also assesses the value recycle or redistribution by analysing the utilisation of the
LBFTs to determine whether the land-based mechanisms are being used for infrastructure financing to benefit
communities.
Performance of existing LBFT
In order to assess the performance of these tools, the revenue from each tool has been assessed in terms of growth
rate over a period of five years, as well as its percentage contribution to the total revenue income. These factors will
be critical in assessing the performance of the said tools.
In the case of Saharanpur Municipal Corporation, land based fiscal tools/ VCF tools that can be considered are the
incomes from property tax and additional stamp duty, as illustrated in the following table.
Table 34: Performance of existing LBFT for SMC
(Rs. in Crores) 2012-13
(A)
2013-14
(A)
2014-15
(A)
2015-16
(A)
2016-17
(A) CAGR
Percentage
of revenue
income
FY201617
A Property tax 3.94 4.09 4.78 6.22 12.86 34% 11%
B Stamp duty contributions 3.30 8.80 3.60 5.64 3.01 -2.3% 3%
Sub-total from LBFT (A+B) 7.24 12.89 8.9 12.45 16.32 22.5% 14%
Total revenue income 50.49 82.27 89.18 105.60 113.84 22.5%
Percentage of LFBT to total
revenue income 14% 16% 10% 12% 14%
Source: SMC and CRISIL Analysis
As shown in the table above, the income from property tax and stamp duty contribution was 11% and 3% of the total
revenue income respectively, from FY 2012-13 to FY 2016-17. The collection of property tax has been growing at a
high CAGR of 34% over the given period with it having contributed over 14% of the total revenue income in FY 2016-
17. As explained earlier, the property tax is calculated on the basis of annual value, which in turn is calculated based
on the carpet area of the property and the monthly rental rate. There is a provision to revise the monthly rental rate
after every two years to keep it in line with the market value, thus indirectly linking property tax in Saharanpur to
market values. However, the rates are not revised regularly and hence the actual scenario is that the monthly rental
rate is not in sync with the market value.
The other contributor in the revenue income of SMC is the stamp duty contribution which forms 3% of the total
revenue income (for FY17). It is to be noted that the stamp duty contribution increased tremendously in FY14 but
has fluctuated in the years since, with a CAGR of -2.3 % for the period analysed. The decrease in stamp duty
collection may be attributed to demonetisation in FY17 or the irregularity in releasing the share of stamp duty
surcharge to the ULB regularly. This tool is directly linked with the market value as the stamp duty is charged on the
transaction value of the property being sold.
61
Further, the land based fiscal tools used by the SDA have been assessed with the help of the following table.
Table 35: Income from development charges levied by SDA and their shares in revenue income
Income (in Rs lakh) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A)
Income from Application & Plan fees 5.67 3.08 6.02 6.31
Total Revenue 654.27 348.42 334.43 352.58
% of Total Revenue 1% 1% 2% 2%
Income from Betterment fees 11.32 12.59 11.49 9.77
Total Revenue 654.27 348.42 334.43 352.58
% of Total Revenue 2% 4% 3% 3%
Income from License fees 0.07 0.11
Total Revenue 654.27 348.42 334.43 352.58
% of Total Revenue 0.02 0.03
Income from supervision charges 12.88 12.40 10.97 19.75
Total Revenue 654.27 348.42 334.43 352.58
% of Total Revenue 2% 4% 3% 6%
Income from Development fees 20.14 13.37 8.23 28.52
Total Revenue 654.27 348.42 334.43 352.58
% of Total Revenue 3% 4% 2% 8%
Impact Fees (Prabhav Shulk) 6.48 6.32 16.54 18.50
Total Revenue 654.27 348.42 334.43 352.58
% of Total Revenue 1% 2% 5% 5%
Land Sub-Division Fee 17.15 11.13 25.15 14.09
Total Revenue 654.27 348.42 334.43 352.58
Percentage of Total Revenue 3% 3% 8% 4%
Source: SDA and CRISIL Analysis
Table 36: Performance of existing LBFT for SDA
Income (in Rs Lakhs) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR % of revenue
income FY 15-16
Stamp Duty 57.42 61.55 59.98 56.09 -0.8% 16%
Development Fee 20.14 13.37 8.23 28.52 12.3% 8%
Free hold Charges 0.64 5.83 4.77 15.00 186.5% 4%
Compounding 106.36 104.54 72.99 85.63 -7.0% 24%
License fees 0.07 0.11 0.03%
Map fees 5.67 3.08 6.02 6.31 3.6% 2%
Impact fee 6.48 6.32 16.54 18.50 41.8% 5%
Betterment Fee 11.32 12.59 11.49 9.77 -4.8% 3%
Supervision charges 12.88 12.40 10.97 19.75 15.3% 6%
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Sub-division charges 17.15 11.13 25.15 14.09 -6.3% 4%
Total Revenue Income 654.27 348.42 334.43 352.58
Source: SDA, CRIS Analysis
Table 37: Contribution of LFBT to the Revenue Income
(Amount in Rs Lakhs) 2012-13 (A) 2013-14 (A) 2014-15 (A) 2015-16 (A) CAGR
Total income from LBFTs 238.06 230.80 216.20 253.75 2.2%
Total revenue income 654.2664 348.42 334.43 352.57 -18.6%
Percentage of total revenue
income 36% 66% 65% 72%
Source: SDA, CRIS Analysis
Compounding fees contribute the largest amount to the revenue income received by Saharanpur Development
Authority. It constitutes 24% of the revenue income but has been observed to be decreasing at a CAGR of -7.0% for
the actual figures till 2015-16. The compounding charge is being levied per sq. m. This can be attributed to the
approved rates being revised regularly. All the other building and development charges contribute to only 72% of the
total revenue income.
Even though the income from stamp duty did not grow steadily, but rather demonstrated a fluctuating trend each
year, it still remains a significant contributor to the overall revenue income of SDA, contributing 16% to the revenue
income in FY16. The LBFTs which have illustrated the highest CAGRs are freehold charges increasing exponentially
at a CAGR of 186%, from FY 2012-13 to FY 2015-16 contributing to 4% of the revenue income of FY16. Impact fee
and supervision fee contributed to 41% and 15.3% respectively of the total revenue income in FY16.
LBFTs’ efficacy in capturing incremental market value
The market value assessment indicates that land and property values have been growing at a CAGR of 10% from
FY12 to FY17. However, the infrastructure investments in the city resulted in the tremendous growth of circle rates
from FY 2013 to 2014. The circle rates of Saharanpur city were last revised in 2017 and have witnessed moderate
growth from FY 2013-2014 to 2016-17.
Similarly, property tax computation is based on ARV rates which in turn depend on 2014 rental rates. As the rates
remained unchanged, the growth in revenue can be inferred to be on account of the physical expansion of municipal
limits. Any increase in market value is not being captured. The performance of the existing LBFTs show that the
majority of the tools are built on the area-based rates and do not vary with the change in the capital values.
The analysis of town planning charges, primarily comprising development fee, stamp duty and regularisation charges,
indicates that apart from regularisation charges i.e. compounding fee and building permissions, the other town
planning charges are based on the unit rate fixed on area, as fixed by SDA. Neither have the rates been revised
regularly, nor has the rate of increment in the revenue from LBFT been significant, exacerbating the disconnect from
market values and contributing a miniscule share to the revenue income. For instance, the external development
charge approved in 2010 was INR 200 per sq m which was proposed to be increased to INR 220 per sq m. The unit
rates have not been revised since 2014.
Growth in revenue from vacant land tax and stamp duty surcharge in SMC, on the other hand, not only captures the
increase in number of transactions due to development or physical expansion, but also factor in the increase in capital
value. While the objective of LBFT is to capture the incremental market value, the existing LBFTs in SMC and SDA,
especially the town planning and building permission related charges and property tax for SMC, do not account for
the increase in capital value, thus leaving scope for improvement in meeting the actual revenue generation potential.
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Utilisation of LBFT
The land-based fiscal tools have essentially been used to cover a portion, if not hundred percent, of the capital
investment (or to service debt when required), but certainly not for general administrative or operation and
maintenance expenditure. Land-based fiscal tools that are one time receipts at the time of granting development
permission are in the nature of capital receipts and should legitimately be used for capital expenditure.
Considering the universe of tools being levied by the key agencies of SMC and SDA, it has been observed that only
property tax levied by SMC is of a recurring nature and is charged annually amongst LBFTs. All the other contributors
to the revenue income such as stamp duty (for both SMC and SDA), development fees (SDA), impact fees and all
fees pertaining to the process of building permissions are charged only once. The revenue from these one-time
charges are collected in a separate escrow account, i.e. “Infrastructure Development Fund” of the Development
Authority.
It is important to determine how the redistribution of revenue from land-based financing is taking place by examining
how they are being used. In the case of Uttar Pradesh, there is a government order provisioning the creation of a
separate fund viz. ‘Infrastructure Development Fund’ and a certain portion of the revenue from various LBFTs are
transferred to this fund annually. The same has been explained in the next section. The figure below provides the
distribution and use of different income sources available with SMC and SDA.
Figure 13: Utilisation of various income sources of SMC and SDA
5.3.1 Infrastructure development fund
As per Uttar Pradesh State Housing and Habitat Policy, 2014 (UPSHH) policy, infrastructure development fund has
been created in all development authorities and the Housing and Development Board. A fixed percentage of income
from certain identified sources is being regularly credited to this fund to ensure contribution of these authorities
64
towards development of infrastructure such as roads, drainage, sewerage, water supply and development of parks,
etc.
As per GO 152/9-A-1-1998, of Uttar Pradesh Government, Housing Section – 1, (dated January 15, 1998), it is
mandatory to spend 80% of the infrastructure development fund towards capital expenditure and only 20% towards
any revenue expenditure. The fund is created at the development authority level and all expenditure from the fund
has to be approved by a committee headed by the Divisional Commissioner with the representation of the following
members:
District Magistrate
Vice Chairman - UDA
Municipal Commissioner/ Executive Officer or other representative from urban local body
Representative from PWD
Representative from Jal Nigam
As per office memorandum of GoUP number 1498 (dated September 23, 2014) existing provisions, income from the
following sources in regulated areas is contributed to a separate bank account:
90% of fees received for change of land use
90% of proceeds from development fee
90% of proceeds from city development charges
50% of income collected for compounding
90% of income from impact fees, collected as per provisions under master plan zoning regulations
Under the aegis of the divisional commissioner of Saharanpur, an infrastructure committee meeting was held on
August 10, 2017 where the following works, and the budget for the same were approved:
Key takeaways
The following can be inferred, based on the analysis carried out in this chapter:
Revenue from the LBFTs in SMC are being used for the administrative and O&M expenditure as there is no other
source to cover operation and maintenance costs
Property tax levied by SMC is of a recurring nature and charged annually amongst LBFTs, while all the other
contributors to the revenue income such as stamp duty (for both SMC and SDA), development fees (SDA),
compounding fees, impact fees, land sub-division, supervision, freehold charges are all one time or transaction-
based
Property tax for SMC contributes to around 11% of the total revenue income in FY17. The contribution of the
other LBFTs towards revenue income has ranged between 10% to 16% in the analysed years. LBFTs in SDA
however, contribute in the range of 36% to 72% to the revenue income in the analysed years
The designing of existing LBFTs needs reconsideration to improve their performance, not only in capturing the
incremental value but also in recycling this value for financing infrastructure
65
Identification of potential VCF tools
The main objective of this section is to identify the reforms in the existing LBFTs so as to improve their revenue base
and suggest new tools, based on the literature study that would be apt for the city and can be explored as potential
revenue sources to fund the projects being set up by the central / state governments and ULBs. Each of the existing
tools is evaluated against the identified parameters to identify the lacunae for which improvements are suggested.
Subsequently, the reforms that are required to improve the performance of the existing LBFTs, resulting in an
increase in revenue, have been listed. Revenue projections are done based on the proposed modifications to the
existing tools, as well as on new tools, to arrive at the potential.
Evaluation of existing LBFTs against the parameters
6.1.1 Shortlisting of tools
The existing tools have been evaluated based on following parameters:
Tax base - the measure (value or area) of taxable assets: In the case of Saharanpur, most of the town planning
charges are based on rates defined on the area and not the market value, except for the compounding charges
and impact fees
Efficiency - whether the tool is non-distortionary, and incentive compatible: The tool should have little to
no scope for avoidance and should be able to capture any increase in value due to infrastructure provision
Equity- Groups should be treated equally; lower income groups should not be more affected than higher
income groups - On the contrary, in Saharanpur, houses of identical areas in two different locations/ zones and
having different prices will have the same development fee. This is because the development fee is based on
the per sq m rate. This suggests that even though the locations have different market values and houses are
being purchased by homebuyers of different income brackets, the development fees paid would remain the same
and the tax could therefore be considered iniquitous. Similarly, city development charges are area-based and
charged similarly for all locations to the private developer
Adequacy - revenue generating capacity, stability, and buoyancy: In the case of Saharanpur, though the
revenue from stamp duty surcharge is buoyant as it is based on market value guidelines, the revenue is not
stable as it is susceptible to market demand. Thus, it is necessary that the tool be adequate enough to meet the
objective of its creation/ cost recovery and also justify the test of ‘rational nexus’ wherein the fee is rationally
linked to the impact created by a particular development
Manageability - implementability /enforceability and administrative costs: The existing tools in Saharanpur
with the ‘area-based rates’ need frequent revision of base rates. It is observed that the rates are not revised as
per the desired frequency and involve administrative cost. For instance, property tax MRV rates require a survey
to be conducted to get the existing zone-wise rental values. This results in underperformance of the tool in terms
of revenue generation
Legal feasibility: The tools need to be backed up with state/municipal legislations or brought about by executive
orders and should have a clear definition, intent, tax base, rate, mode and event of payment, administrative
framework, accounting, budgeting and auditing provisions, and have safeguards against restriction and distortion
of the market
The table below summarises our analysis of the major gaps in the existing system of land value capture and identifies
the areas of essential reforms.
66
Table 38: Evaluation of existing LBFTs to identify areas of reform
Tool Tax base Efficiency Equity Adequacy Manageability Legal Remarks
1 Property tax Carpet area/ covered area or
land area (in case of plots)
Collected annually, basis is ARV
which is based on multiple
factors including circle rates.
Property tax rates not revised
every two years as specified by
rules (last revision 2010)
Linked to rental values
which are calculated as
per ward and localities
As rental values not revised
periodically, tool lacks
buoyancy. Besides, it is
marred by low collection
efficiency, poor assessment
etc.
Revision of rental values is an
enormous task and cost to SMC
Property tax is levied by under Section
172 read with Section 173 of the MC
Act and elaborated through the Uttar
Pradesh Municipal Corporation
(Property tax) Rules, 2013
The revenue potential of the tool can be
explored.
Bring in direct linkages with capital value
2 Tax on deeds of immovable
property (surcharge on stamp
duty)
Market value of the
property/land
Changes with value of land,
hence equitable
Changes with value of
land hence equitable
High revenue generating
capacity
Easy to tap; collected by
Registration and stamp duty
department, and respective
shares transferred to SMC/ SDA
Provisions of surcharge specified
under Section 191 of the MC Act,
The revenue potential of the tool can be
explored.
The tool can continue as is
3 Development fee
(includes external and
internal development charges)
Area of land parcel and
density (dwelling units per Ha)
Lacks buoyancy Common rates
irrespective of location
and value
High revenue generating
capacity
Easy to tap; collected at the time
of granting building permission,
simple calculation formulae
Development fee’ is charged under of
Section 15(2-A) of the UPD Act
The revenue potential of the tool can be
explored.
Revenue can be made buoyant by linking
directly to circle rates.10
4 Compounding charges Computation matrix is based
on multiple factors – area of
plot, type of violation, existing
and permissible land use and
circle rates
Buoyant Changes with value of
land, type of violation
and land use factors,
hence equitable
Need to have a long term
strategy for encouraging
planned development
Difficult to administer; scouting of
illegal constructions is an
enormous task and cost to SDA
Section 32 of the UPD Act enables the
Development Authority to levy
compounding charges
The charge is levied for regularisation of
violations in building bylaws and is not
considered a fiscal tool
6 Impact fee Area-based but linked to land
value
Buoyant Changes with value of
land and land use
parcels, hence
equitable
High revenue generating
capacity, needs to be used
judiciously with a long term
strategy
Easy to tap; Zoning Regulations, GO number
3712/9-A-3-2000-26 L.U.C./91 dated
21.08.2001
The revenue potential of the tool can be
explored.
The tool can continue as is
7 Development license fees Area-based Lacks buoyancy Common rates
irrespective of location
and value
Sufficiency of the revenue
against the administrative
cost to the process the
application needs to be
checked
Easy to tap Section 2 (hhh), section 39-B and 39-
C of the UPD Act
The fee is levied by the authority on a
private developer for grant of a license for
assembly and development of a land
within an area and should not be
considered as value capture financing tool
8 Map fee Area-based Lacks buoyancy Common rates
irrespective of location
and value of map
submitted for
application
Sufficiency of the revenue
against the administrative
cost to the process the
application needs to be
checked
Easy to tap Letter no.: 1267/C.E./2016-17 dated
May 7, 2016 signed by Chief Engineer,
Saharanpur Development Authority
The fee is levied by such authority for
scrutinising the maps submitted and
should not be considered a value capture
financing tool
9 Free hold charges Easy to tap Para 5.1.3 of the Freehold Policy Freehold charges refer to the charges
collected by an authority to convert a land
from leasehold to freehold, not to be
considered a value capture tool
10 Currently it is indirectly determined on basis of central public works department cost index and needs to be revised annually by Vice chairman
67
6.1.2 Reforms required in the existing tools
The above table clearly indicates the areas that need improvement for enhancing the performance of existing LBFTs.
This is mainly due to low tax base and low growth rate, which can be attributed to pending revision of rates. As an
immediate measure, it is suggested to revise the rates. As a next level of reform, it is necessary to look at the tax
base, and other parameters identified above. Accordingly, the reforms have been suggested against each of the
existing tools.
6.1.2.1 Property tax
Property tax is levied by SMC on properties (including land and any building constructed) within the municipal limits
of a city. In case of Saharanpur, properties are classified based on various criteria, such as the situation of property
based on the type of road and type of building, for the purpose of calculating property tax. The annual value of a
property, derived from the minimum monthly rate of rent per unit area (square foot) of the carpet area for every group
of building within a ward, is the basis for calculation of the property tax that can be levied on the property. The average
per square-foot monthly rental rate for residential and commercial properties in Saharanpur is Rs 1.30. The analysis
of revenue from property tax demand – based on the household assessment and collections by SMC after the
summation of arrears and the discount given by municipal commissioner on one-time settlements – suggests that
the collection from property tax collection has increased at a CAGR of 27% over the past four years (from 2013-14
to 2016-17).
Table 39: Demand collection details for property tax
Values in INR Crores 2013-14 2014-15 2015-16 2016-17 CAGR
Property Tax Demand 901.50 972.92 1,183.14 1,304.29 13%
Property Tax Collection 579.73 857.8 1,078.47 1,198.85 27%
Practices from other states suggest that property tax by municipal corporations is being levied based on the annual
rental value of property or capital value of property.
Following reforms are suggested to improve the revenue potential of property tax in SMC:
Moving from the annual rental value method to capital value method: In Saharanpur, property tax is being
charged based on the annual rental value of property and average per square-foot monthly rental rate for
residential and commercial properties is 1.30, which is very low when compared with some other cities. It is
suggested that the property tax should be linked to circle rates, and the ratio of property tax to the average circle
rate should be assumed to be 0.3%. According to the existing trend, the circle rate has increased at a CAGR of
10% from 2013-14 to 2017-18. The below table provides projected circle rates over the next five years (2018-19
to 2021-22).
Box 6-1: Property taxation in Mumbai
MCGM (Municipal Corporation of Greater Mumbai) has moved to the capitalised value system of property tax
assessment in 2010. The rates have been separately defined for each user categories and have been revised in
2015. As per the 2010 rates, the average rate for residential property was 0.73%, open land (residential) and
non-residential (including commercial) was about 1.33% and for open land (non-residential) was about 0.57% of
the capital value. As per the revised rates, the average rate for residential property is 0.77%, commercial is 1.90%
and for open land is 3.5% of the capital value.
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Table 40: Property tax as a percentage of the circle rate for SMC
Parameters 2018-19 2019-20 2020-21 2021-22
Average circle rate (INR/sqm) 28,102 31,922 36,261 41,190
Property Tax as a % of circle rate 0.3% 0.3% 0.3% 0.3%
As highlighted above, the annual rental value method is being currently followed by SMC for calculation of property
tax. However, this method lacks buoyancy and assumes common rates in all cases irrespective of the location and
land value. Therefore, it is proposed that the calculation of property tax should not be based on the area of land, but
should rather be linked to circle rates. This will ensure that revenues are buoyant due to direct linkage with the circle
rates.
Revised revenues from property tax
The revenue from property tax for the municipal corporation has been projected based on the following assumptions:
(a) property tax as a percentage of the circle rate has been assumed to be 0.3%; (b) the average built-up size per
property is 17 sqm; (c) circle rate will grow at a rate of 13.1% per annum. The table below provides the details of
property tax demand as per the capital value method over the next five years from 2018-19 to 2021-22. The total
demand from property tax is estimated to be around Rs 97 crore with the proposed method; the difference in the
models increase the income of property tax by Rs 16 crore.
Table 41: Increased demand in property tax
Amount in INR crore 2018-19 2019-20 2020-21 2021-22 Total
Demand from property tax as per existing method 17 19 21 24 81
Demand from property tax as per proposed method 17 21 26 32 97
Source: CRIS Analysis
6.1.2.2 Development fee
A development fee is levied by the SDA from an applicant on submission of building permit or development permit in
the development area. The development fee is assessed and collected on the basis of gross area of the land parcel.
In case of Saharanpur, the development fee is charged at a flat rate of Rs 700 per sqm. The analysis of revenue from
the development fee collected by the SDA suggests that revenue from the development fee has increased from 3%
of the total revenue to that of 8% of total revenue from year 2012-13 to 2015-16 at a CAGR of 12%.
The following reforms are suggested to improve the revenue potential of property tax in SDA:
Box 6-2: Development fee in Rajasthan
The practices from other states suggest that development fee is being levied by development authorities based
on the flat rate applied on the area of land parcel. For example, in Rajasthan, the external development charge
is calculated on the basis of the total area of land and rates of external development charges, based on the
population of towns (as per Census 2001) are: (a) Rs 100 per sqm for towns with a population of up to 1 lakh; (b)
Rs 150 per sqm for towns above 1 lakh up to 10 lakh; and (c) Rs 200 per sqm for towns with population above
ten lakh.
Also, in Punjab, a variation of the flat rate system is used for charging the development fee. The properties in the
development area are categorised into nine categories depending on the land-use, such as residential,
commercial and recreational. The per-acre development fee is fixed for each of the different types of properties.
For instance, the development fee is charged at Rs 10.5 lakh per acre for residential properties and Rs 22.5 lakh
per acre for commercial properties.
69
Moving from area-based charges to value-based development fee: In case of Saharanpur, development fee
is being charged at a flat rate of Rs 700 per sqm. It is suggested that the development fee should be linked to
circle rates.
Revision of rate: According to the existing trend, the circle rates have increased at CAGR of 13.1% from 2013-
14 to 2016-17 and a development fee as a percentage of the circle rate has been around 12%. It is proposed
that the development fee should be calculated based on circle rate and the ratio of development fee to circle rate
should be 10%, which is less than the current trend of around 12%. Despite the reduction in this ratio, revenue
from development fee for the development authority is still expected to increase. The table below provides values
of proposed development fee for the next four years (2018-19 to 2021-22).
Table 42: Development fee as a percentage of circle rates in the next four years
Parameters 2018-19 2019-20 2020-21 2021-22
Average circle rate (INR/sqm) 28,102 31,922 36,261 41,190
Development fee as a % of circle rate 10.0% 10.0% 10.0% 10.0%
Development charge derived (INR/sqm) 28,10 31,92 36,26 41,19
As highlighted above, the area-based method is being currently followed by SDA for calculation of development fee.
However, this method lacks buoyancy and assumes common rates in all cases, irrespective of location and value of
land. Therefore, it is proposed that calculation of development fee should not be based on area of land but should
rather be linked to the current circle rates. This will ensure that revenues are buoyant due to the direct linkage with
circle rates.
Revised revenues from development fee
Revenue from the development fee for the development authority has been projected based on the following
scenarios, which assume different growth rate of building permissions areas:
Scenario 1 – 10% growth in building permission areas
Scenario 2 – 20% growth in building permission areas
Scenario 3 – 30% growth in building permissions areas, and
Scenario 4 – 40% growth in building permissions areas.
The table below provides details about revenue to be generated from the development fee over the next five years
from 2017-18 to 2021-22. Revenue from development fee is estimated to range from INR 5.5 crore to INR 12.9 crore.
Demand increases twice the proposed method to that of the existing method.
Table 43: Improved revenues from development fee
(Income in INR Crores) 2017-18 2018-19 2019-20 2020-21 2021-22 Total
Demand from development fee as per existing
method 0.4 0.4 0.5 0.5 0.6 2.3
Demand from development fee as per proposed
method - Scenario 1 0.7 0.9 1.1 1.3 1.6 5.5
Demand from development fee as per proposed
method Scenario 2 0.8 1.0 1.4 1.8 2.3 7.3
Demand from development fee as per proposed
method Scenario 3 0.9 1.2 1.7 2.4 3.3 9.6
Demand from development fee as per proposed
method Scenario 4 1.0 1.5 2.2 3.3 4.9 12.9
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6.1.3 Identification of new tools
6.1.3.1 Vacant land tax
Vacant land tax is an area-based intervention and is levied annually until the building is constructed on the plot. It is
applicable on those landowners who have not yet initiated construction on their land. In the existing scenario, vacant
land tax is levied by Saharanpur Municipal Corporation as a sub-component of property tax and value of tax is
calculated based on classification of land in the following categories: (a) land situated on a road having a width of
more than 24 metres; (b) land situated on a road having a width of 12 metres to 24 metres; and (c) land situated on
a road having less than 12 metres.
The following reforms are suggested to improve the revenue potential of vacant land tax in SMC:
Vacant land tax should be linked to circle rates: It is suggested that vacant land tax should be linked to circle
rates. According to the existing trend in circle rates, the circle rates have increased at CAGR of 13.1% from 2013-14
to 2016-17. The ratio of vacant land tax to average circle rate has been assumed to be 0.10%. The table below
provides details on average circle rates and number of vacant properties, from which vacant land tax is expected to
be collected over next five years (2017-18 to 2021-22).
Table 44: Vacant land as % of circle rates
Parameters 2018-19 2019-20 2020-21 2021-22
Average circle rate (INR/sqm) 28,102 31,922 36,261 41,190
Vacant Land Tax as a % of circle rate 0.10% 0.10% 0.10% 0.10%
Number of vacant properties 10,583 10,026 9,469 8,912
As highlighted above, area based method is being currently followed for calculation of vacant land tax. However, this
method lacks buoyancy and assumes common rates in all cases irrespective of location and value of land. Therefore,
it is proposed that the calculation of vacant land tax should not be based on the area of land, but should rather be
linked to the circle rates. This will ensure that revenues are buoyant due to direct linkage with the circle rates.
Assumptions and revenue projections
Revenue from vacant land tax for the SMC have been projected based on the following assumptions: (a) vacant land
as a percentage of assessed properties shall be 10%; (b) the reduction in vacant land as a percentage of assessed
properties shall be 0.5%; (c) circle rate will grow at rate of 13.1% per annum. The table below provides details of
revenue expected to be generated from the vacant land tax over the next five years, from 2013-14 to 2016-17. The
total revenue from vacant land tax is estimated to be around Rs 13 crore.
Box 6-4: Vacant land tax in Greater Hyderabad Municipal Corporation
The practices from other states suggest that vacant land tax is being levied by municipal corporation based on
the capital value of land. For example, in Telangana, the Greater Hyderabad Municipal Corporation (GHMC)
under the Hyderabad Municipal Corporation Act, 1987, imposes a tax of 0.5% of the registration value of the land
and a penalty of 0.25% of the capital value of the land, where garbage is dumped and unhygienic conditions are
prevailing on vacant land.
On the other hand, in Bihar, the vacant land tax is charged at a flat rate for all the vacant lands that fall within the
municipal limits. The variation there is that different rates are charged for vacant lands depending on the type of
roads on which they are located. For instance, in case of municipal corporation, the rate is Rs 5 per sqm. For
vacant land on principal main road, Rs 4 per sqm for vacant land on main road and Rs 3 per sqm for all other
roads.
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Table 45: Additional revenues from vacant land tax
Values in INR Crores 2018-19 2019-20 2020-21 2021-22 Total
Revenue from Vacant Land Tax 2.97 3.20 3.43 3.67 13.28
6.1.3.2 Cess on property tax in smart city ABD
The cess on property tax is a charge levied on a property whose value has increased or will increase as a result of
the development carried out by a government authority in the area where the property is situated. As per the proposed
methodology, it is to be levied over the property tax of the properties present in the wards, where the area based
development is proposed as per the Smart City proposal. This cess will be recurring in nature and will be employed
year-on-year over the property tax.
Assumptions and revenue generation
The cess on property tax is proposed to be charged at 33% over and above the property tax for existing residential
and commercial properties in the influence zone, i.e., the wards in the area-based development proposal of Smart
City mission. It is to be calculated at per-sqft rate using the same formula and per-sqft rate used for calculating the
annual rentable value and the property tax. The charges will be levied on the basis of the total area for the number
of residential and commercial properties in the Smart City ABD area.
Table 46: Assumptions for property cess in smart city area
Assumption Unit Rate
Cess on Property Tax % 33.0%
CAGR in residential properties in smart city ABD (2013-17) % 8.0%
CAGR in commercial properties in smart city ABD (2013-17) % 8.0%
CAGR in total properties in smart city ABD (2013-17) % 8.0%
Here, the total number of residential and commercial properties in the ABD area are projected to grow at the existing
CAGR of 8.0%. The cess on property tax is charged at 33% over the existing property tax.
Table 47: Revenues for cess on property tax in smart city ABD
Cess on Property Tax (In INR Cr) 2018 2019 2020 2021
Cess on Property tax for residential properties in smart city area 3.0 3.3 3.5 3.8
Cess on property tax for commercial properties in smart city area 3.8 4.1 4.5 4.8
Total cess on property tax for properties in smart city area 6.9 7.4 8.0 8.7
By the employment of cess on property tax on the residential and commercial properties in the wards belonging to
the area-based development in the proposal, the additional revenues are projected to subsequently grow from Rs
6.9 crore per annum in 2018 to Rs 8.7 crore per annum in 2021.
Box 6-5: Additional development cess in Mumbai
In case of Mumbai, the Mumbai Housing and Development Authority levies an additional development cess on
the influence area, i.e., housing units and apartments that are to be redeveloped under the scheme for
redevelopment of dilapidated tenanted buildings in the suburbs of Mumbai. This “additional development cess”
will be payable to the development authority during the construction period and commercial operation of the
project. The additional cess is proposed at Rs 5,000 per sqm, to be revised every three years
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6.1.3.3 Tax increment financing in ABD
Under TIF, the incremental revenue from future increases in property tax or a surcharge on the existing property tax
rate is ring-fenced and utilised for a defined period of time to finance some new investment in the area. The increment
would generally come from the natural increases in the absolute value of tax revenue.
TIF creates funding for public or private projects by borrowing against the future increase in these property-tax
revenues. Tax Increment Financing (TIF) enables local economic development officials to collect the property tax
revenue attributable to increased assessed value resulting from new investments within a designated area.
The new revenue can be used to pay for infrastructure or other improvements within the designated area.
Saharanpur, which is competing in the Smart City Challenge – Round 3 would have a potential to apply TIF, once
selected. It is proposed to be employed in Saharanpur Smart City area over the property tax charged on the
residential and commercial properties present in the Smart City ABD area.
Assumptions and revenue projections
For raising debt, the initial set of assumptions projected for finding the debt requirement is as follows:
Table 48: Assumptions for TIF
Description Value
Total PPP for area based development 87.64
Probable debt requirement (contingency) for PPP projects 15
It is assumed that if 50% of funds required for PPP projects are listed in the Smart City proposal, 50% of funds
required for soft cost and 10% of funds for sufficing any convergence fund, which, if it does not materialise, the total
debt requirement would be around Rs 142.3 crore. This fund will be specifically used for development PPP and
convergence-based projects of the Smart City ABD area.
Table 49: Assumptions for interest payment and tax increments under TIF
Assumptions Unit Value
Loan Amount INR Crores 15
Interest Rate per annum (multilateral/bilateral loan with low interest rate) % 10.0%
Opening balance in the escrow account years 7
Repayment Period Years 8
Tax Increment Financing on annual tax per sq m for residential properties % 10%
Box 6-7: TIF in Greater Hyderabad Municipal Corporation (GHMC)
Greater Hyderabad Municipal Corporation (GHMC) has applied the concept of TIF to fund capital improvement
by accessing bank loans to be repaid by the households, as an annual tax increment, getting immediate benefits
due to the implementation of the TIF programme in select neighbourhood. A total approach was followed to
develop complete hard infrastructure in all peripheral neighbourhood to take up capital improvement in peripheral
localities lacking roads, underground drains and water supply, parks and street lights with a resident contribution
of 30% of the local water project cost, if the internal distribution lines had to be laid. The loan was raised at a
lowest interest rate of 10.75% with a repayment period of 10 years. The loan repayment was planned to be
accomplished through property tax enhancement by 5% every year for 10 years on all properties in the
neighbourhood and the surrounding areas that are to benefit from the development works.
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Assumptions Unit Value
Tax Increment Financing on annual tax per sq m for commercial properties % 15%
The loan amount is assumed as about Rs 15 crores, with a principal moratorium of two years, i.e., the construction
period of the Smart City ABD and interest rate is assumed to be charged at 10% per annum. A progressive TIF of
10% and 15% is proposed on annual tax for residential and commercial properties in the Smart City ABD area to be
incremented every three years. A debt repayment schedule has been formulated to define the amount required to be
paid by the SMC on year.
Table 50: Debt repayment schedule
In INR crores 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Total repayment (principal + interest) 1 3 3 3 3 3 3 2 2 1
The total fund requirement, which needs to be sufficed by the property tax TIF to service the debt repayment
obligations, start with INR 7 crore in 2018, reaching INR 3 crore in 2020 and further declining to INR 1 crore in 2022
and to INR 7 crore by 2026. The tax increment financing is assumed at 10% and 15% on the existing annual rentable
value for the properties assessed in the Smart City ABD area. This TIF will suffice the amount required by the
Saharanpur Municipal Corporation to service the debt repayment obligations year on year. Total revenue generated
for the municipal corporation by employing property tax – the TIF on the commercial and residential properties of the
Smart City ABD area range from INR 1.1 crore in 2019 and to INR 4 crore in 2027.
Table 51: TIF revenues from ABD area
TIF revenues from ABD 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
In Rs crores 1.1 1.1 1.1 2.5 2.5 2.5 4.0 4.0 4.0 5.8
An escrow account for cash flow is also generated utilising the cash inflow generated by incremental TIF on the
property tax and the cash outflow required by the Saharanpur municipal corporation to suffice the funds required to
service the debt obligation. As per the current analysis, the escrow account for TIF will have a closing balance of INR
6 crore by 2026. The details about year-wise accumulated reserve funds with SMC are mentioned below:
Table 52: Escrow account details for TIF
Escrow Account for TIF 2018 2019 2020 2021 2022 2023 2024 2025 2026
Closing balance in Escrow account
(in Rs crores) 7 5 3 2 1 1 3 4 6
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Table 53: Revenue forecasting for existing and proposed tools
Existing VCF Tools 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
1 Property Tax
Existing Revenue 9.0 9.7 11.8 13.0 15 17 19 21 24
Proposed Revenue 17 21 26 32
2 Development Fee
Existing Revenue 0.3 0.4 0.4 0.5 0.5 0.6
Proposed Revenue - Scenario 1 0.3 0.7 0.9 1.1 1.3 1.6
Proposed Revenue - Scenario 2 0.3 0.8 1.0 1.4 1.8 2.3
Proposed Revenue - Scenario 3 0.3 0.9 1.2 1.7 2.4 3.3
Proposed Revenue - Scenario 4 0.4 1.0 1.5 2.2 3.3 4.9
Proposed VCF Tools 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
1 Vacant Land Tax
Proposed Revenue
2.76 2.97 3.20 3.43 3.67
2 Cess on property Tax - Smart City ABD
Proposed Revenue
6.9 7.4 8.0 8.7
3 Smart City - Property Tax TIF
Proposed Revenue
1.1 1.1 1.1 2.5 2.5 2.5 4.0 4.0 4.0 5.8
Source: CRIS Analysis
Table 54: Key parameters for the existing and new VCF tools
Tools New (N) or Existing
(E) Development Benefit Area
size
Existence of enabling
environment
Existence of Institutional capacity
Potential for resident opposition
Potential for Business/ community
opposition
Potential for Developer community
opposition
Potential for Any other Public agency
opposition
Revenue Yield
Revenue Stability
Existing VCF Tools
1 Property Tax N / E H H M H M N N H H
2 Development Fee N M H M M M H N M H
Proposed VCF Tools
1 Vacant Land Tax E L H M H N N N L M
2 Cess on PT - Smart City ABD N / E M H M H N N N L H
3 Smart City - Property Tax TIF N / E M H M H N N N L H
Legend H - High
M- Moderate L- Low N - None
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Summary
In this chapter, the existing LBFTs are reviewed to identify the tax base, legal backing and manageability. Factors
related to efficiency, equity and adequacy have been analysed to arrive at a potential to explore it further. Most
town planning and building charges except property tax are one-time levies. Besides most tools, including
property tax, development fee and city-development charges are area-based tools and lack buoyancy. This also
explains low collections. For instance, collections from the property tax are equivalent to collections of all building
related value capture tools in SDA. There may not be of much merit in increasing the number of tools, but rather
adhering to relevant buoyant tools.
Regulatory tools such as compounding are linked to the value of properties, and this practice should be continued
in future as well.
Our analysis clearly indicates that tools such as development fee and property tax should undergo a series of
improvements to increase the revenue potential, beginning with revision of rates.
From the various revenue trends, development fee and property tax show higher revenue potential and have
been detailed out for reforms.
The various fees (map fee, development license charges and sub-division charges) that are meant for the
administrative purpose have not been considered for further evaluation. As the property tax reforms have been
taken up in the city as a separate study, in this report we have limited our analysis to estimating the potential of
growth in property tax by shifting it to capital value based method for computation.
Compounding charges have contributed significant revenues for SDA. However, the tool has not been analysed
further, as it does not count as a value capture tool
All major value capture tools have been provided for appropriately in the legislation and detailed rules have been
formulated for accounting them. Provisions for crediting collections from major tools in separate account are also
provided for.
Investments in the Smart City programme account for major public investments. Based on the analysis of impact
areas, detailed tools such as cess on property tax (when a city is selected as a smart city), TIF and betterment
levy have been provided for in our analysis.
Table 53 gives the summary of the revenue-generating potential of the existing and proposed value capture tools
that have been detailed earlier in this chapter.
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Development of VCF framework
The previous chapter suggests modifications that would result in substantial increase in the revenues of some of
VCF tools viz. development fee, property tax and new tools that can be explored to capture incremental values. This
chapter suggests the principles for designing of VCF tools and framework that needs to be adopted to designing of
the tools.
Designing of VCF tools
Following principles could be used in designing the legal provisions:
Efficiency: Effective collection of building and planning charges is facilitated when it is linked with the process
of granting development permission or license for development. This will minimize the risk of avoidance. For
property tax and related tools, mechanisms for regular collection and avoiding accumulation of arrears are
important.
Clear demarcation of responsibility: The authority that will assess the tax and authority that will collect the tax
should be clearly defined with provisions for dispute resolution. For instance in case of labour cess, SDA has to
ensure that cess is collected and before handing out any commencement certificates for the project. The entire
amount of this labour cess is transferred to the labour department.
Adequacy: Revenue from LBFTs should be buoyant to meet the increasing cost of infrastructure development.
For this, changes in the tax base, the rate of tax, the mode and event of payment need to be defined. It would be
more appropriate to prescribe appropriate tools for any transactions in project impact areas of smart city, AMRUT,
AVP scheme, etc.
Intent: The purpose for which the funds can be used should also be explicitly defined. Use for capital expenditure
for urban infrastructure including servicing debt raised for particular capital works should be the legitimate uses
of fund. Financing revenue expenditure like establishment or O&M should be avoided. Currently certain
percentages from value capture tools used by SDA are transferred to separate bank account “Infrastructure
Development fund”. The SDA utilizes fund for developmental works in the city.
Accountability: Accounting, budgeting and auditing provisions that ensure use of funds according the legislative
intent should also be incorporated. Creating a separate Fund and maintaining separate accounts would be
necessary. The annual budget estimates of the authority should be required to separately show the estimated
receipts and payments of the Fund. Similarly the annual accounts should be required to show income and
expenditure and balance sheet of the Fund. More explicit provisions for auditing the Fund in terms its compliance
with the legal provisions should also be made.
Equity: A well-designed value capture mechanism will capture a greater portion of revenue from those who
benefit most from new infrastructure. Thus value capture is a powerful tool for governments to establish a fairer
balance of funding for city’s infrastructure needs. Applying value capture fairly means local governments must
balance two primary outcomes (i) capturing a portion of value uplift from local land and property owners, and so
reducing the burden on the broader tax base and (ii) ensuring the burden placed on locals is reasonable, and
leaves them better off than if no project was delivered. Thus, achieving a balance of fairness requires careful
consideration of the impacts of each value capture mechanism prior to its application. For example, in order to
make the fiscal tool equitable to all sections of the society, the value based development charge can be used.
Avoidance of market distortion: Land based fiscal tools require that the values of land, real estate and housing
markets grow and expand for garnering increased resources. It is therefore imperative to ensure that tool does
not restrict or distort the markets and market distortion, if any, needs to be monitored and kept under control.
Manageability: In case of Saharanpur, numerous fees and charges exist and are one-time and area-based. This
cause issues in manageability and accountability. Instead a fewer number of clearly defined tax or a single-
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benefit tax would be easier to administer, well understood by taxpayers and would not increase the transaction
cost to an extent that makes avoidance attractive. Thus, decision makers need to ascertain whether a tax will be
easy to implement (i.e. low administrative cost) and whether it can raise a predictable and consistent amount of
funds for the infrastructure project.
Framework for VCF tools
Saharanpur has grown and changed significantly over recent decades. This growth and change is expected to
continue and this presents challenges for policy makers. The changes mean that city needs to transform its
infrastructure so it continues to support needs in the 21st century. It is important to think through who will pay for this
transformation. Traditional grants based approach has provided for infrastructure investments from general taxation,
supplemented by user charges. But the existing model has limitations. The city managers need to rethink the funding
balance between those who directly benefit from infrastructure and broader taxpayers. Users and other beneficiaries
will have to take a greater share of the funding burden, releasing taxpayer money to meet the needs of a growing
city population.
In this search for additional investment for infrastructure, the concept of value capture is often raised as the solution.
Value capture can provide opportunities to deliver a fairer and more sustainable funding mix for infrastructure, and
should play a greater role but with caution. From the range of individual value captures mechanisms available, each
has its own benefits and costs, risks and rewards. Understanding these opportunities and challenges can help
Saharanpur to implement these mechanisms effectively and efficiently. Over time local governments should look to
introduce a more consistent approach to value capture across several institutions like SMC, SDA, AVP, etc.
Putting the concept of value capture into practice requires governments to first overcome a number of hurdles, risks
and sensitivities. While some of these risks and sensitivities present a challenge for governments, it is important that
they are acknowledged and addressed. The key to winning and maintaining support for value capture is for
governments to engage at an early stage of each process, and to keep industry and the community informed
throughout project delivery. Some of the key considerations while formulating value capture strategy are given below:
The principles highlighted in section 7.1 when applied the tools would result in improvement of their performance and
effective capturing of incremental value. A framework is suggested to ascertain a generic pathway to capture a part
of the increased value by the infrastructure investment proposed by Central/State Government and agencies SMC,
SDA and AVP. The stages of the framework are identified below
1. Concept/ Scope: The concept of capturing the value created by the investment in infrastructure (value capture)
is not new internationally or in India. The notion of capturing land value gains on account of urban development
was introduced way back in the late 19th Century through the Improvement Trust Acts and later in 1915
betterment levy was reintroduced in conjunction with Town Planning Schemes. Uttar Pradesh also has legislative
history of direct land based beneficiary levies and taxes which make it easier for approaching value capture.
The first step in the integrated value capture framework is to review existing public investments in infrastructure
and policy decisions of local governments. The regulatory environment for land and building transactions is also
an important factor to ascertain what existing legislative opportunities are available and it forms the regulatory
basis for the value capture and alternative funding strategy. This stage is an important stepping stone to devising
a value capture framework.
The concept or the scope of the identified VCF tool justifying the intent of its levy needs to be clearly defined. In
case of area based VCF tools is generally to capture the incremental value for carrying out planned development
in the area or regulating building and planning function. On the other hand, the project based VCF tool is used
for funding of a particular project by capturing the incremental value in the influence area
2. Planning: In this stage the catchment area is identified. For a project based tool the influence area of the project
is identified. The catchment area would demonstrate increase in the value of the property. Subsequently, the
method of assessing, levying and collecting the incremental value generated, time period during which the tool
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will be in operation is determined. For an area based tool, it is important to review the scope and coverage of
tool. Any possibility to optimize rates and review methodology of levying the tool also needs to be considered
here. Thus value capture framework will provide scope for area and project based tools.
3. Implementation: The tax structure, rate, funding mechanism, interdepartmental sharing, etc. need to be clearly
defined at this stage. This stage also defines the accountability for revenue with a defined collection mechanism
and fund management (ring fencing).
4. Governance: In this stage efficient mechanism for monitoring of fund utilization is put in place. Regular
monitoring and evaluation of the fund utilization will have to be established.
Figure 14: Framework for value capture financing
Approach to value capture
Defining objectives
Reviewing existing public investments including regulations (for land and property)
Review of existing legal and policy environment
Implementation
Implementation framework – Defining tax structure, rate, tax base and sharing mechanism for new tools – Modifying tax structure, rate, tax base and sharing mechanism for existing tools
Defining collections and funding mechanism
Governance
Redistribution of funds
Monitoring and evaluation
Area Based Value Capture
Review existing tools
Scout for similar tools in existing & other states
Review assessment methods & revenue receipts
Identify scope for improvement
Project Based Value Capture
Area of influence
Land value impact analysis in the impact area
Identification of stakeholders
Defining method of assessing, levying and collecting incremental value
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Table 55: Framework for identified VCF tools
S.N. VCF tool Concept Planning Implementation Governance
1 Cess on property tax in ABD area
Supplemental property tax charged in smart city ABD
area for rejuvenation of identified area
Replication of projects identified under SCP in other parts
of cities
To be levied and collected on all properties in the
smart city ABD area
To be levied and collected by SMC annually
35% additional cess has been assumed over
existing property tax
Ring fenced account to be used for development
of projects identified in the particular area
2 Tax increment financing in ABD area
Funding of part of PPP projects in case of delay or non-
interest of the private players
Replication of projects identified under SCP in other parts
of cities
To be levied and collected by SMC annually
Any increment in the property tax revenues due
to increase in the value of the property needs to
be captured in a separate account and used for
funding the identified projects
Ring fenced account to be used for development
of projects identified in the particular area
3 Vacant land tax
Charged on landowners who have not initiated
construction on their lands in areas with infrastructure
facilities
To be levied and collected on all properties in
SMC area
To be levied and collected by SMC annually
Tax base defined as capital value
Revenues from VLT shall be monitored to
regulate use in expansion of infrastructure in the
city
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Identification of legal amendments
For the implementation of the above framework, modifications in the existing acts, government orders and regulations
would be required. The acts and the clauses that need to be amended are identified below.
Table 56: Identification of legislative and regulatory measures for value capture tools
# VCF Tools Concept Legislative measures for implementation
1
Cess on
Property tax in
ABD area
Supplemental property tax
charged in smart city ABD
area for rejuvenation of
identified area
Replication of projects
identified under SCP in
other parts of cities
This cess/ duty can be levied on the services (digital and
technological) being provided in an ABD area.
This can be implemented by amending the existing statutes to include
enabling provisions for the local bodies having jurisdiction over the
ABD area, to levy and collect this cess in the ABD area along with the
other existing taxes and duties levied by such authorities.
Further, additional provisions can be incorporated to provide for
sharing of the proceeds arising of the aforesaid VCF tools in an ABD
area between the local bodies collecting the duties/ levies and the
SPV managing the development of the ABD area.
2
Tax increment
financing in
ABD area
Funding of part of PPP
projects in cases of delay or
non-interest of the private
players
Replication of projects
identified under SCP in
other parts of cities
For levying the incremental taxes in terms of the TIF programme,
necessary amendments will need to be made to the legislations which
provide for the levy of taxes which are proposed to be increased.
Further, additional provisions will need to be incorporated to enable
the use of the proceeds arising out of the increase in the property
related taxes for carrying out the development in terms of the TIF
programme.
3 Vacant land tax
Charged on landowners
who have not initiated
construction on their lands
in areas with infrastructure
facilities
The Uttar Pradesh Municipal Corporation Act, 1959 contains
provisions under Section 172(1)(f) for levy of a vacant land tax.
However, in order to enable the municipal corporation collect this tax,
appropriate rules will need to be framed under section 172(1)(f) for
providing the calculation mechanism and other procedural aspects
pertaining to the collection of this tax.
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Implementation Plan
The reforms identified in the above sections once finalised will have to be taken up progressively so as to increase
the revenue of SMC, SDA and AVP and also have acceptability among various stakeholders. The various steps to
be taken up in the short term and medium term have been identified.
Short term action plan
During the gestation period required for floating the identified reforms, short term action plan is suggested for
immediate improvement of revenues that are simpler to be implemented by SMC and SDA.
1. Revisions of rates: The rate of development fee and some other town planning charges have not been revised
by SDA since November 2014. For SMC, monthly rental charges were last revised in the 2014-15. Thus revisions
of rates need to be taken on priority for increasing revenues. The frequency of revision needs to be defined and
adhered to for maintaining some buoyancy in the tax rate.
2. Strengthening of administrative mechanism:
– For levying collections: An internal system or software needs to be devised for tracking levies related to
building planning and permissions. Short recovery/ non-recovery of levies like purchasable far fee, city
development charges, external development charges, land-use conversion charges, stacking & supervision
charges, etc. has also been cited by CAG report. An internal control system can be synced with existing
building bye-laws and updates in GoUP orders to avoid short recoveries for value capture tools.
– For tracking collections: Collection of all the town planning related charges need to be brought under a
single umbrella. Proceeds from many tools are collected under Infrastructure Development Fund. A good
tracking system needs to be established for tracking the utilisation of the revenues. This would result in
deployment of funds for the required infrastructure development based on existing citizen priorities.
3. Proper monitoring of income for different levies: As per GoUP order (January 1998), 90% of the income of
SDA pertaining to development charges, land use conversion charges, freehold charges, registration fees, etc.
and 50% of compounding charges was to be kept in a fund with a view to contribute towards infrastructure
development of the city. A regular monitoring system should be formulated through which the funds should be
utilised only for intended purposes.
4. Revenue sharing mechanisms: Currently all the income from value capture tools is appropriated by SDA except
for property tax. While SDA plays significant role in planning and implementation of infrastructure projects, the
O&M responsibilities are vested with the SMC. For the new value capture tools being recommended, it is
necessary to revisit the revenue sharing mechanisms between the two institutions and create a way forward for
investments in critical infrastructure for city growth. As per 74th constitutional amendment, the planning function
and development charges should be within the purview of SMC. Considering this the Municipal Corporation Act
and the UPD Act needs to be revised.
Medium term action plan
This includes actions that are suggested to be taken as next level of improvement. The immediate measures
suggested under the short term action plan would result in gaining time for preparation for the next level of reforms.
The medium term measures would include:
1. Revisions of tax base: It is suggested to move the tax base of development fee and property tax from ‘Area-
based’ to ‘Value-based’.
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2. Revision of Acts, rules and Byelaws: Acts and rules to be aligned to the revision of tax base for development
fee. Provisions for linking the property tax rates in the city to the capital value needs to be brought in the Municipal
Corporation act.
3. Introduction of TIF: Framing guidelines for introduction of new VCF tool viz. Tax Increment Financing. Property
tax reforms such as increase in frequency of revision of rates or moving to capital value base method of
computation will be required as precursor to TIF. The revenue from the tool to be used for replicating the Smart
City Proposal to various parts of the city.
4. Introduction of property cess: Framing guidelines for introduction of new VCF tool viz. cess on property tax to
be levied on properties in ABD area.
5. Introduction of vacant land tax: The Uttar Pradesh Municipal Corporation Act, 1959 contains provisions under
Section 172(1) (f) for levy of a vacant land tax. However, in order to enable the municipal corporation collect this
tax, appropriate rules will need to be framed
6. Revenue sharing arrangements: Considering various provisions for infrastructure development through SDA,
SMC and AVP it may be useful to link common infrastructure fund with a common capital improvement plan. The
principles of sharing revenue from various value capture tools should be clearly laid down with short and long
term targets for infrastructure outcomes.
83
Way forward
The report analyses the existing land based fiscal tools and identifies the lacunas in the current system for value
capturing. The report also suggests reforms to be implemented to increase the revenues from the Land based fiscal
tools. A VCF framework is suggested, identifying the process of implementation of reforms/ modifications in the
existing tools and a structure for establishing the new tool. Existing acts and rules that need to be amended to align
them with the reforms have been identified along with the existing practices in the other states that can be adopted
by SMC and SDA for improving the performance of the existing land based fiscal tools. Short term and medium term
action plans are recommended for initiating the process of reforms in the existing VCF system.
The report will be followed by a presentation to the stakeholders for finalisation of the reforms and VCF framework.
The comments would be included in the report and a Draft report 2 would be submitted along with the long term
action plan. Once the modifications suggested in the tools are finalised, drafts of the act and clauses to be amended
will be framed.
These drafts will be finalised in consultation with SMC and SDA officials and submitted in the form of Final Report.
This will followed up by the handholding support which will include revision of rules, byelaws and contractual
agreements, if any, between SMC, SDA and other parastatals.
84
Annexures
Annexure 1: Relevant extracts from Uttar Pradesh Municipal Corporation (Property Tax) Rules, 2000
Section 174 - Definition of "annual value":
“(1) "Annual value" means -
(a) in case of railway stations, colleges, schools, hotels, factories, commercial buildings and other non-residential
buildings, twelve times the value arrived at on multiplying with multiplier to be fixed by rules in the monthly rate of
rent per square foot of residential buildings fixed under clause (b) with the covered area of the building or open area
of the land or both, as the case may be.
(b) in the case of a building or land not falling within the provisions of clause (a), 'twelve times the value arrived at on
multiplying the carpet area of the building, or the area of the land, by the applicable minimum monthly rate of rent per
square foot of the carpet area in the case of building or the applicable minimum monthly rate of rent per square foot
of the area in the case of land, as the case may be, and for this purpose the minimum monthly rate of rent per square
foot shall be such as may be fixed once in every two years by the [Municipal Commissioner] on the basis of the
location of the building or the land, nature of the construction of the building, the circle rate fixed by the Collector for
the purposes of the Indian Stamp Act, 1899 and the current minimum rate of rent in the area for such building or land
and such other factors, and in such manner, as may be prescribed:
Provided that where the annual value of any building would, by reason of exceptional circumstances, in the opinion
of the Corporation, be excessive if calculated in the aforesaid manner, the Corporation may fix the annual value at
any less amount which appears to it equitable.
Explanation I.- For the purpose of calculation of annual value the carpet area shall be calculated as under--
(i) Rooms--full measurement of internal dimension;
(ii) Covered Verandah--full measurement of internal dimension;
(iii) Balcony, Corridor, Kitchen and Store--50 per cent measurement of internal dimension;
(iv) Garage--one-fourth measurement of internal dimension;
(v) Area covered by bathroom, latrines, portico and staircase shall not form part of the carpet area.
Explanation II - The standard rent, the agreed rent or the reasonable annual rent of a building for the purposes of the
Uttar Pradesh Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 shall not be taken into account
while calculating the annual value of that building.]
[(2) Where the Corporation so resolves, the annual value for the purpose of assessment of property taxes shall--
(a) in the case of land and owner-occupied residential building which is not more than ten years old, be deemed to
be 25 per cent less and if it is more than ten years but not more than twenty years old, be deemed to be 32.5 per
cent less, and if it is more than twenty years old, be deemed to be 40 per cent less than the annual value determined
under clause (b) of sub-section (1); and
(b) in the case of residential building let on rent, which is not more than ten years old, be deemed to be 25 per cent
more, and if it is more than ten years but not more than twenty years old, be deemed to be 12.5 per cent more than
the annual value determined under clause (b) of sub-section (1), and if it is more than twenty years old, be deemed
to be equal to the annual value determined under clause (b) of sub-section (1).”
85
Extracts from the Property Tax Rules:
“4. Classification of Property (1) Municipal Commissioner shall classify the notification of property not falling within
the provisions of Clause (a) of Sub-section (1) of Section 174 of the Act. Ward wise and there after within each ward,
it shall be classified basing on the situation of property on three different types of roads, namely-
(a) roads having a width of more than 24 meters,
(b) roads having width of 12 meters to 24 meters,
(c) roads having width less than 12 meters.
(2) *Municipal Commissioner shall classify the nature of construction of building not falling within the provision of
clause (a) of Sub-section (1) of Section 174 of the Act, on the following basis-
(a) pakka building with R.C.C. roof or R.B. roof.
(b) any their pakka building ; or
(c) Kachacha building that is all other building not covered in clauses (a) and (b).
(3) Municipal Commissioner shall accordingly arrange all building in a ward in maximum number of nine different
groups and in case of all vacant plots of land, in maximum number of three different groups as shows below :
(a) in case of building the nine groups shall be as follows –
(I) pakka building with R.C.C roof situated on a road having a width of more than 24 meters.
(II) pakka building with R.C.C roof situated on a road having width of 12 meters 24 meters.
Note - The word Mukhya Nagar Adhikari, Apar Mukhya Nagar Adhikari, Upa Nagar Adhikari,Shayak Nagar Adhiakari,
Nagar Pramukh, Upa Nagar Pramukh, Sabhasad and sabahasad substituted by the word, Municipal Commissioner,
Aditional Municipal commission, Deputy Municipal commission, Asstt. Municipal Commission, Mayor, Deputy Mayor,
Coroporator and Corporators vide U.P.Ondinance No. 8 of 2003. Published in U.P. Gazette, Extra, Part II, Section
(Ka), dated 8-4-2003.Pakka building with R.C.C roof situated on a road having width less than 12 meters.
(III) Other pakka building situated on a road having a width of more than 24 meters.
(IV) Other pakka building situated on a road having a width of 12 meters to 24 meters.
(V) Other pakka building situated on a road having width less than 12 meters.
(VI) Kachcha building situated on a road having a width of more than 24 meters.
(VII) Kachcha building situated on a road having a width of 12 meters to 24 meters.
(VIII) Kachcha building situated on a road having width less than 12 meters.
(b) In case of land, the three groups will be as follows-
(i) Land situated on a road having a width of more than 24 meters;
(ii) Land situated on a road having a width of 12 meters to 24 meters;
(iii)Land situates on a road having less than 12 meters]”
4- A. Fixation of minimum monthly rate of rent - The Municipal Commissioner shall once in every two years fix
the minimum monthly rate of rent per unit area (square foot) of the carpet area for every group of building within a
ward or the applicable minimum monthly rate or rent per unit area (square foot) of the area for every group of land
as the case may be having regard to -
(a) the circle rate fixed by the collector for purpose of the Indian Stamp Act, 1899; and
(b) the current minimum rate of rent in the area for such building or land ;
86
Note - The word Mukhya Nagar Adhikari, Apar Mukhya Nagar Adhikari, Upa Nagar Adhikari, Shayak Nagar
Adhiakari, Nagar Pramukh, Upar Nagar Pramukh, Sabhasad and sabahasad substituted by the word, Municipal
Commissioner, Aditional Municipal commission, Deputy Municipal commission, Asstt. Municipal Commission, Mayor,
Deputy Mayor, Coroporator and Corporators vide U.P. Ondinance No. 8 of 2003. Published in U.P. Gazette, Extra,
Part II, Section (Ka), dated 8-4-2003.
1. Rule 4-A and substituated and 4-C Ins. by Notification No. U.O. 204/IX-7-2002-63-1-95. TC dated 10 January,
2003, published in U.P. Gazette, Part I, Section (Ka), dated 29 March, 2003.Provided that before fixing such monthly
rate of rent, the “Municipal Commissioner shall notify such proposed rates in two daily newspaper having circulation
in such city and thereafter providing a minimum fifteen days’ time for filling objections by interested persons. All such
objections shall be heard wardwise after grouping the objections received in maximum number of 12 different
bunches. Each bunch shall contain the objections received for one group of building or one group of land, as the
case may be. All objections shall be disposed of by the “Municipal Commissioner himself or an officer authorized by
“Municipal Commissioner in this behalf after giving the opportunity of being heard to at least ten per cent of the total
number of objectors. It shall not be necessary to hear personally all the objectors or the interested persons. The
objections may be decided in bunches.
Explanation - Keeping in view of different in fixation of carpet area, the rates on the basis of covered area would be
80% of carpet area based rates for purposes of self-assessment.
4-B. Publication of the rates of minimum monthly rent. — The objections when decided under Rule 4- A, the
Municipal Commissioner shall notify in two daily newspapers having circulation in such city, the minimum monthly
rate of rent per square foot of the carpet area for every group of building within a ward, or the applicable minimum
monthly rate of rent per square foot of the area for every group of land, as the case may be, and thereafter it shall
become final.
4-C. Tax Assessment - The assessment of tax shall be made on the basis mentioned hereunder —
(1) Calculation of Annual Value - Annual Value-Carpet area x fixed per unit area monthly rate of rent x 12.
Or
Covered area x fixed per cent unit area monthly rate of rent x 12 x 80%
(2) Payable tax - Taxes would be payable in according with the rates fixed under Section 148 of the Act on the basis
of annual value.”
87
Annexure 2: Extract from U.P. Gazette for the calculation of property tax for non-residential properties
88
89
Annexure 3: Sample bill for property tax collection
90
Annexure 4: Relevant extracts from Uttar Pradesh Urban Planning and Development (Assessment, Levy
and Collection of Development Fee) Rules 2014
Part A
“4. Assessment of Development Fee (sub section (2-A) of Section 15)
(1) On an application submitted under rule-3 for building permit or development permit in the development area, the
development fee shall be assessed and collected on the basis of the gross area of the land parcel multiplied by the
rates as set out in schedule ‘A’ appended to these rules and the multiplication factor as specified below:
Area of Land Parcel
(Hectares) Multiplication Factor
Up to 0.2 1.0
More than 0.2 and up to 01 0.9
More than 01 and up to 05 0.8
More than 05 and up to 10 0.6
More than 10 0.4
Provided that in case any part of land parcel owned by the applicant is earmarked for road, park and open space or
green belt in the master plan & zonal development plan, the development fee shall be calculated after deducting the
area of such land from the gross area of the scheme subject to the condition that the entire land parcel has to be
contiguous and the applicant undertakes to develop such land as road, park and open space or green belt as the
case maybe, at this own cost.
Explanation: For the purpose of this rule,
(a) The rates set out in schedule ‘A’ shall mean the rates applicable on the date of submission of application to
the Authority.
(b) Only such land earmarked for road, park and open space or green belt in the master plan or zonal development
plan may be included in the application for development permit as is owned by the applicant.
(2) In case of application for sub-division of a plot within the approved layout plan anywhere in the development area
for which development fee has already been paid, the development fee shall be assessed and collected in
accordance with sub-rule (1).
(3) In case of an application for building permit for four or more dwelling units/apartments, including group housing
anywhere in the development area, the development fee up to a density of 100 dwelling units per hectare shall be
100 % of the development fee as calculated in sub rule (1) and 5% higher for every additional 25 dwelling units or
part thereof as per the table given below:
Density
(No. of dwelling units per Hectare) Percent of development fee as calculated in 4 (1) above
Up to 100 100
Above 100 and up to 125 105
Above 125 and up to 150 110
Above 150 and up to 175 115
Above 175 and up to 200 120
Ad as on (i.e. 5 % more for every additional 25 dwelling units or part thereof)
Above 135 and up to maximum 330 150
91
(4) In case of application for building permit in the built-up area other than those covered under the provision of sub-
rule (2) and (3), the development fee shall be 10% of the development fee as calculated in sub- rule (1).
(5) In case of an application for development permit anywhere in the development area, the applicant shall carry out
the internal development works at his own cost and furnish a performance guarantee against the internal
development works by mortgaging 20% of the saleable land (excluding the land earmarked for economically weaker
section and low income group housing and 10 percent land mortgaged as performance guarantee against
construction of these houses, wherever applicable) in favour of the Authority. The Land thus mortgaged, shall be
released in proportion to completion of internal development works. In case of any default by the applicant the
authority may envoke the performance guarantee the carry out the internal development works either itself through
such agency as it deems fit.”
Part B
“5. Rates of Development Fee (sub section (2-A) of Section 15)
The rates for development fee in the development area or a particular part thereof shall be as mentioned in the
schedule appended to these rules.
Provided that of special amenity or impact-oriented or zone-based development (e.g. transit-oriented development
along mass transit corridors), an additional development fee not exceeding 25 percent of the development fee
prescribed in the Schedule, may also be levied.”
Schedule
(See Rule 5)
S. N. Development Area Development Fee
(Rs. per sqm.)
1. Ghaziabad 2,500
2. Lucknow, Kanpur, Agra 1,400
3. Varanasi, Allahabad, Meerut 1,000
4. Moradabad, Bareilly, Aligarh, Gorakhpur, Bulandhshar, Khurja, Hapur-Pilkhua,
Baghpat-Barot-Khekra, Saharanpur, Mathura Vrindavan, Saharanpur 700
5. Muzzaffarnagar, Firozabad-Shikohabad, Ayodhya-Faizabad, Raebareli, Banda,
Rampur, Unnao-Shuklaganj, Urai, Azamgarh 400
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Annexure 5: Office orders of Saharanpur Development Authority
93
94
Annexure 6: Relevant extracts from Uttar Pradesh Urban Planning and Development (Assessment, Levy
and Land Use Conversion Charge) Rules 2014
“3. Levy of Land Use Conversion Charge [sub-section (1) of Section 38-A].--
Where in any development area the land use of a particular land is changed as a result of amendment of Master Plan
or Zonal Development Plan under Section 13 of the Act, the Authority shall be entitled to levy land use conversion
charge on the owner of such land in the manner and at such rates mentioned in Rule 4:
Provided that land use conversion charge shall not be levied in the following circumstances-
(i) Where the land use of particular land is changed as a result of coming into operation of Master Plan or Zonal
Development Plan.
(ii) Where land is owned by the Central Government, the State Government or a Local Authority.
(iii) Where total or partial exemption from payment of land use conversion charge has been granted by the State
Government under the Act, the land use conversion charge to the extent of exemption.”
“4. Assessment and rates of Land use conversion charge [sub-section (1) of Section 38-A).--
(1) The land use conversion charge shall be assessed and collected on the basis of gross area of the land parcel
multiplied by the circle rate of that particular land and the percentage as given in Schedule "A" annexed hereto and
the multiplication factor given below—
Area of Land Parcel (Hectares) Multiplication Factors
Up to 0.25 1.0
More than 0.25 up to 1.0 0.9
More than 1.0 up to 5.0 0.8
More than 5.0 up to 10.0 0.7
More than 10.0 0.6
Note: (i) The land use conversion charge shall be calculated on telescopic basis; e.g., land use conversion charge
for a land parcel of 15.0 hectares shall be calculated as given below:
[(0.25x1)+(1-0.25)x0.9+(5-1)x0.8+(10-5)x0.7+(15-10)x0.6]x circle rate x applicable percentage given in Schedule A.
(ii) No discount in circle rate based on land area shall be admissible.
95
Schedule A
(See Rule 4)
S.N. Existing Land Use
Land use conversion charge as percentage of circle rate
Proposed Land Use
Public and Semi-
Public Facilities,
Services and Utilities
including Traffic and
Transportation
Industrial Residential Offices Mixed Commercial
1
Agriculture, Parks,
Open Spaces and
Green Belt
20% 35% 50% 100% 125% 150%
2
Public and Semi-Public
Facilities, Services and
Utilities including Traffic
and Transportation
NA 20% 40% 75% 100% 125%
3 Industrial Nil NA 25% 75% 90% 110%
4 Residential Nil Nil NA 50% 75% 100%
5 Offices Nil Nil Nil NA 30% 50%
6 Mixed Nil Nil Nil Nil NA 25%
7 Commercial Nil Nil Nil Nil Nil NA
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