CityFinance Stories

Category: City Revenues

  • Paying for the Service: Unpacking Fees and User Charges in India’s Largest Cities 

    Paying for the Service: Unpacking Fees and User Charges in India’s Largest Cities 

    When was the last time you paid your city directly for something, not a tax, but a fee for a specific service or approval? If you can’t quite remember, you’re not alone. Most citizens interact with municipal fees, and user charges constantly yet rarely notice them as a distinct and surprisingly large source of city revenue. 

    In our previous blog, we broke down Own Source Revenue (OSR) into its building blocks and found that fees and user charges form its second-largest component nationally, accounting for an average of 32 per cent of the total. This blog post takes a closer look at that component: what fees and user charges consist of, and how their composition plays out across some of India’s largest cities. 

    What Counts as a Fee, What Counts as a Charge 

    A fee is a levy by ULGs for performing specific statutory and regulatory functions, while a user charge is a payment for the usage of a municipal service, often linked directly to the consumption or utilisation of that service. According to the National Municipal Accounts Manual (NMAM), fees include licensing fees, fees for grant of permit, fees for certificate or extract, regularisation fees, penalties and fines, entry fees, and other fees while user charges include empanelment and registration charges, development charges, service/administrative charges, and other charges.

    Conceptually, user charges are meant to recover at least a portion of the operation and maintenance costs of municipal services such as water supply, sanitation, solid waste management, and parking. Fees, on the other hand, are intended to compensate ULGs for regulatory and administrative functions, including licensing, inspection, certification, and approvals. In practice, however, the distinction between the two is often blurred in municipal accounts. 

    An examination of fee and user charge revenues in India’s largest cities – Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata, Surat, Ahmedabad, and Pune*, shows that these revenue streams function not only as instruments of service pricing, but also as a reflection of how cities govern and finance urban services. 

    Fees, User Charges, and the Wider OSR Picture 

    Zooming out to the full Own Source Revenue base, tax revenue emerges as the largest contributor in six of the eight cities, with fees and user charges forming the next most significant stream. 

    Two cities stand apart from this pattern. In Mumbai, OSR is shaped not only by taxes and fees and user charge revenue but also by a substantial share of other (miscellaneous) income. In Surat, fees and user charges surpass tax revenue altogether to become the single largest component of OSR, pointing to a comparatively stronger reliance on service and regulation-linked receipts. 

    An Even Divide: Fees vs. User Charges Across India’s Largest Cities 

    The data reveals an even divide across the eight cities. Mumbai, Surat, Ahmedabad and Pune derive a larger share of this revenue from user charges, while Hyderabad, Chennai, Bengaluru and Kolkata rely more on fees. This pattern suggests that the former group leans relatively more on service-linked revenue streams, while the latter mobilises a greater proportion of its income through regulatory and permission-based functions. 

    Same Categories, Different Priorities

    Across cities, the composition of fees and user charges reflects the different functional pathways through which ULGs mobilise their Own Source Revenue. 

    Major User Charges StreamsCityWhat This Reveals
    Development Charges Hyderabad, Bengaluru, Mumbai, Surat, Pune, and AhmedabadStrong reliance on urban planning approvals, land development processes, and infrastructure-related contributions. 
    User ChargesBengaluru, Mumbai, Kolkata, and SuratSanitation, water services, health-related services, and other civic amenities form an important basis for recurring municipal income.
    Service/Administrative ChargesChennaiRevenue flowing from engineering oversight, supervisory roles and administrative processes rather than direct service consumption. 
    Major FeesCityWhat This Reveals
    Fees for Grant of Permits Hyderabad, Chennai, Kolkata and AhmedabadRevenue generation through development control, construction approvals, and transport or logistics regulation.
    Licensing Fee Bengaluru and Pune Revenues from market regulation and commercial activity permissions, linking fiscal flows to public health oversight and civic compliance mechanisms. 
    Regularisation Fees Mumbai and KolkataRevenues arise from post-facto compliance and corrective planning measures.
    Other FeesMumbai, Surat, and Ahmedabad Reflecting property record administration (mutation and transfer charges), tax enforcement documentation (notice and warrant fees), utility service connections, and civic facility charges (advertisement, tuition, survey fees).

    Taken together, these patterns suggest that while some cities monetise growth and regulatory authority, others rely more strongly on service-linked revenue streams, illustrating the varied ways ULGs translate their functional responsibilities into Own Source Revenue. 

    Key Takeaways 

    The 74th Constitutional Amendment laid out a comprehensive framework for municipal fiscal empowerment, and the functions listed in the Twelfth Schedule potentially create multiple opportunities for fees and user charges. But constitutional empowerment alone does not guarantee fiscal outcomes. Translating that potential into actual own-revenue growth depends on state legislative action, administrative capacity for revenue administration, and clarity in how functional responsibilities are assigned across service areas. 

    As this analysis shows, fees and user charges are far from a monolithic revenue stream; their composition varies as much with how a city governs as with how it grows.

    Stay tuned as we continue this series unpacking the building blocks of India’s municipal finances. 

    *Pune has been included as it is among India’s top cities in terms of population size and municipal financial volume. All the other cities in the analysis are cities with populations above 4 million.

  • Inside the Revenue Mix: What Makes Up a City’s Own Source Revenue? 

    Inside the Revenue Mix: What Makes Up a City’s Own Source Revenue? 

    A city’s fiscal autonomy is only as strong as the revenue it generates on its own and, as our last blog post showed, that autonomy is far from evenly distributed. But what exactly makes up that revenue?

    In our previous blog post, we explored how Own Source Revenue (OSR) is generated across cities of different sizes and states. OSR is not a single revenue stream; it is a combination of different revenue components that Urban Local Governments (ULGs) generate through their taxation powers, service delivery functions and assets. Each of these components contributes differently, shaping the overall structure of municipal own revenue.

    At its core, OSR comprises two broad categories: tax and non-tax revenue. Tax revenue is dominated by property tax, alongside levies on water supply, sewerage, conservancy, street lighting, education, and other municipal services. 

    Non-tax revenue is more diverse and includes fees and user charges for services such as water supply, sanitation, and solid waste management, as well as payments for licenses, permits, and regulatory approvals. Other important components include sale and hire charges, generated from the sale of municipal goods and the hiring of municipal equipment or vehicles, and rental income from leasing municipal assets such as shops, markets, community halls, and land. 

    OSR also includes a residual category termed ‘other income,’ comprising receipts such as forfeited deposits, employee recoveries, disposal of assets, and various accounting adjustments. Unlike taxes and user charges, these receipts are often irregular and unpredictable. 

    The average composition of Own Source Revenue of Indian ULGs across FY 2019–20 to FY 2021–22 highlights the continued dominance of tax revenue, which accounts for half of total OSR. Fees and user charges constitute the second-largest component at 32 per cent, underscoring the importance of service-linked non-tax revenues in municipal finances. Other income contributes 14 per cent, while rental income (3 per cent) and sale and hire charges (1 per cent) together form a relatively small share. Overall, the revenue mix suggests that municipal finances remain anchored in taxation, with non-tax sources, particularly fees and user charges, playing an important, complementary role in strengthening local revenue generation. 

    From Small Towns to Megacities: A Telling Revenue Picture

    FY 2021–22 data shows that tax revenue remains the primary source of OSR for most Indian cities. The notable exception is 4-million-plus cities (4M+ cities), where fees and user charges account for the largest share (47 per cent). 4M+ cities and cities with population less than 100K show a relatively higher share of ’other income’. In contrast, sale and hire charges remain marginal across all city categories. 

    ULGs of a majority of Indian states exhibit limited diversification in their OSR structures, with heavy reliance on tax revenue and fees and user charges. In 12 out of 24 states analysed, these two sources together account for more than 75 per cent of total OSR. Rental income remains a minor contributor in most states, averaging around 15 per cent across the sample. Sale and hire charges are negligible almost universally, rarely exceeding 10 per cent. 

     Key Takeaways 

    The composition of a city’s Own Source Revenue tells a story not just of how much OSR it raises, but of how it raises it and how sustainably it can do so. Across Indian states, the picture is one of limited diversification, a heavy reliance on tax revenue and fees and user charges, with rental income and other receipts remaining largely untapped.  

    Improving Own Source Revenue is not just about diversifying revenue streams. It demands strengthening collection efficiency within existing sources, rationalising fee structures, and reducing dependence on a narrow own revenue base. Achieving this, however, demands skills and capacities that many ULGs, particularly smaller ones, currently lack. Hence, strengthening local capacity is an equally important priority.  As cities face growing expenditure pressures, building a more resilient and self-sufficient municipal finance system is not just a fiscal imperative, it is foundational to delivering better urban services and stronger local governance. 

    Stay tuned for a closer look at the key components of Own Source Revenue of cities.  

    Note: All data is sourced from the Annual Financial Statements submitted by the ULGs on the CityFinance platform. To ensure comprehensive representation and account for variations in data coverage and quality across cities, the figures presented are based on extrapolated financial data covering all 4,824 cities. Among these, 2,541 cities (approximately 60%) possess 3 years of contiguous data (2019–20 to 2021–22) in Cityfinance platform. Data from these cities have been systematically extrapolated using the ’per capita scaling methodology’ to reflect the financial performance of the complete set of 4,824 cities. Learn more about the extrapolation methodology here.