Pagdi system (mumbai)

Hello sir

After analysing your query, I would like you to know that the Pagdi system is a  traditional and unique tenancy rental model in India where the renter is also a part-owner of the house. This does not make him the part-owner of the land or give him any right over the land but only the house. In this system, the tenant enjoys nominal rates compared to the market rates for rent and also has both subletting and selling rights for the property.

The practice was legalized in 1999 by Section 56 of the Rent Control Act, stating that the tenant or any party acting on behalf of the landlord can claim or receive any sum or any consideration as per the agreement between him and the tenant.

 The pagdi-kiraydar system often assures the tenant that despite price inflation or other fluctuations, the rent they pay would remain to be nominal. In south Mumbai, colloquially referred to as SoBo, the pagdi system is still prevalent where some tenants pay a rent of Rs 500 per month when market rates might be as high as Rs 60,000 or more.

Thus, to reiterate, the pagdi system allows the tenant and the owner to come to a mutual discussion on the rent.

The pagdi system also allows the part-owner or the tenant to sublet the land.  If the part-owner puts this house on rent, even this rental income is divided among the real and part-owner. This usually resulted in the real owner making some profits from his asset but the tax incident would be low or completely avoidable.

Regards

Meghna Mishra