Though the Bihar Panchayat Raj Act, 2006, technically contained a provision (Section 27) allowing rural bodies to levy taxes, this is the first operational framework to implement it.

“The primary objective is to strengthen local self-governance, boost the Own Source Revenue (OSR) of rural local bodies, and significantly reduce their financial dependence on the state government,” Bihar Additional Chief Secretary (Cabinet) Arvind Kumar Choudhary told reporters.

Under the new rules, kuccha houses are exempt from the tax, semi-pucca houses will be charged Rs 50 a year, pucca houses Rs 100 a year. Houses built under the Pradhan Mantri Awas Yojana (PMAY) will enjoy a concessional rate of Rs 25 a year.

Beyond residential properties, the rules allow panchayats to levy specific service user charges, including a cleanliness fee and water supply fee of Rs 25 each a year. Commercial and industrial entities operating within rural jurisdictions will face fixed annual operational fees.

Petrol pumps, LPG agencies, brick kilns, and cinema halls will be charged an annual fee of Rs 5,000.

Panchayats have also been empowered to levy taxes on professions, trades, advertisements, local weekly markets, billboards, hoardings, and rural cottage industries.

The rules were drafted on the back of recommendations from the Central Finance Commission and a reform push from NITI Aayog to make local bodies financially self-reliant.

The rules state that revenue collected through these taxes will remain directly with the gram panchayats and must be utilised exclusively for local infrastructure development, such as rural roads, drainage networks, sanitation, and clean drinking water facilities.

An official from the Panchayati Raj department told The Indian Express: “The immediate trigger for formulating rural tax rules is the state government’s push to every department to find ways to boost revenue. Since rural tax was long overdue, the government cleared it”.

State secretariat sources added that the government aims to increase its annual internal revenue to Rs 1 lakh crore by 2028.

Earlier this month, the Bihar Contractors’ Welfare Association (BCWA) and Opposition parties raised concerns over the state’s financial health, citing unpaid contractor dues of Rs 50,000 and the government’s recent decision to draw from the Contingency Fund to meet welfare expenditure. The ruling NDA, however, dismissed the criticism, describing the situation as temporary.