What you Need to Know Around Circle Rate

The circle rate is also known as the collector rate or advice value, the price at which a property will not be recorded in the records of the government

3 bhk flats on sale in kharghar, In order to work and carry out the tasks they are responsible for, government agencies have to raise revenue. This is largely done by levying taxes on the many services they supply us with. The most prominent of these sources of revenue generation are facilities relating to property and related transactions. In this context, we address the prices of the circle and the influence it has on your decision to buy land.

What you need to know around Circle Rate

A home buyer needs to visit the nearest sub-office registrar’s and get it registered in his name in order to legitimately own a house. A postage tax and a licensing fee from the customer are paid by the office to offer this facility. The primary sources of revenue for municipal government and the state are these two responsibilities.

However because each transaction is special in one way or another the municipal authority must at the time of land registration, apply various criteria to calculate the stamp duty and registration fees. This is because the photo comes with circle prices.

What are rates in circles?

In India, land is a subject of the state. It is the duty of district administrations to set a minimum rate for land and other assets in the cities below which a transaction cannot be reported. The circle rates vary from location to location, since cities are large and the importance of one area can be very different from the value of another.

Across India, various names are used to indicate circle rates. Circle rates in Maharashtra are known as ready reckoner rates. Circle rates are also known in Haryana, Punjab and Uttar Pradesh as collector rates or district collector rates. Circle rates in Karnataka are also referred to as the meaning of guidance.

Why do the rates of circles differ within a town?

Circle prices not only vary from city to city in a state, but depending on the precise location of the land, they also vary from locality to locality, from project to project and from building to construction. Circle prices would for example, be significantly higher in a well-established area with metro rail connectivity than in a potential location with no metro rail connectivity.

The circle rating of an area is also indicative of its achievement as a real estate hotspot, among other factors, and will invariably be higher in more desirable residential spots.

For eg, in Gurgaon, the circle rate is Rs 50,000 per sq yard for HUDA Sector 42, 43. For Sectors 104, 105, 106, 109, 110, 110A, 111, 112, 113 and 114, Rs 30,000 per sq yard will be required for land of a comparable scale.

The circle rate is Rs 32,000 per sq metre in Greater Noida’s Alpha 1. The circle rate in the Techzone, on the other hand, is just Rs 23,100 per sq metre.

What are consumer prices and how do they vary from rates in circles?

The state government takes note of the prevailing prices at which assets are sold in a given market when deciding the circle rates for a region. These real values are referred to as the property’s ‘street rate’ and regulators are required to hold the circle rate for a region as similar as possible to the market rate.

Basically, the selling rate is the amount the seller will charge for his property and the buyers will be prepared to pay. In situations where land market prices rise, officials aim to hold it in place because of uncertainty, by keeping the circle rate lower.

District governments should annually update the circle thresholds in order to reach these twin goals. For eg, the district administrations may revise the circle prices at a higher frequency than other cities in the high-intensity housing markets of Gurgaon, Noida and Mumbai. Except in these situations, however the revision is carried out twice a year at best.

When major infrastructure projects drive a property’s selling values upward automatically, late changes frequently result in large differences between the circle rate and the property’s market values. As circle prices are not updated as frequently as the property’s market valuation increases, large differences can be seen between the two across the big property markets in India.

This may be further illustrated by an analogy. As soon as the decision of the Centre to choose Jewar in Greater Noida as the site for the second airport project of the National Capital Region was made public, land prices in and around the village spiked overnight.

In the past, if a farmer sold his land for Rs 4 lakhs to Rs 5 lakhs per bigha, prices now ranged from Rs 20 lakhs to Rs 25 lakhs a bigha. (A bigha fits 843 sq meters of land.)

Incidentally, since 2015, the circle prices have not been updated in Greater Noida, where this area is located and comes under the Yamuna Expressway Industrial Development Authority (YEIDA). In reality, in 2018, the YEIDA introduced a plot-based system along the area where parcels were sold at Rs 15,600 per square meter. This results in deficits suffered by the district government and further promotes the use of uncounted money in real estate (more generally referred to as black money).

Although it is assumed that the transacting parties would register a property on the higher the real purchase value or the minimum rate fixed by the government, there is no incentive for buyers and sellers to record the correct amount. Although it is a rarity, if the real price charged by a buyer is less than the guide amount, the property must be reported depending on the circle rate. For eg, the market rate is smaller than the circle rate in Delhi’s New Friends Colony.

What you need to know around Circle Rate

Implication of taxes if the market rate is smaller than the circular rate

Under Section 56(2)(x) of the Income Tax Act, where the selling value of the property is smaller than its circular rate value, the disparity is taxed as other income’ for the seller. The purchaser, too, would have to pay tax on capital gains on the property’s circular scale.

In the middle of a slowdown of more than five years the government has agreed to give some assistance in the Union Budget 2020 to buyers and sellers. In sales where the difference between the market value of the land and the circular rate is less than 10 percent, the center agreed that no additional tax obligation would occur. The new provision will take effect on the 1st of April 2021.

On November 12, 2020, Union Finance Minister Nirmala Sitharaman unveiled a new stimulus plan under Atmanirbhar Bharat 3.0.0, in an attempt to offer an incremental lift to the economy and home buyers, following the effects of the Coronavirus pandemic. The centre has agreed in the new bundle to raise the differential rate from 10 percent to 20 percent between the circle rate and the agreement value. This will extend until 30 June 2021, with only the main sale of valuable residential units up to Rs 2 crores.

Calculation of Stamp Duty dependent on Circle Scale

Suppose that Uma Rani purchased a flat in the HUDA market, where the existing circular cost in Gurgaon is Rs 5,100 per sq ft. She will have to register the property for Rs 51 lakhs given that the house has a carpet area of 1,000 sq ft and the prevalent circle prices.

Today, 5 percent of this amount will be paid by the Haryana government as stamp duty, because the property is registered on a woman’s behalf. This takes the sum of stamp duty to Rs 2,55 lakhs. As for the registration fee, she would also have to pay an extra Rs 15,000. This way, up to Rs 53.70 lakhs will complete the total cost of the land.

Usage of real estate of unaccounted / black money

If circle values are smaller than a property’s market rate, this allows the buyer to participate in illicit activity, as well as the seller. While the buyer will give the seller the amount the latter asks for, he would agree to have the transaction at the circle rate registered. This is because it is the responsibility of the customer to pay the stamp duty and licensing fees out of his wallet. By presenting a lower valuation of the purchase, the buyer is able to save here.

In the other side, the seller is in a position to save on the capital gains taxes resulting from the sale. A lower transaction value would mean a lower tax outflow on capital gains. The seller also arranges and spends the difference money in cash under this system. There is no official record of this money this way, and therefore the title’ black money ‘.

Example: Assume Ram is buying a property for Rs 80 lakhs from Shyam, since that is the property’s market value. However on the basis of the circle rate calculation, both of them have agreed to register the property at Rs 60 lakhs, since that is the minimum price they are liable to pay. Since this property is in Delhi, Ram will have to pay 6 percent + 1 percent on the sale as a stamp duty and registration fee in Delhi.

Ram will pay Rs 3.60 lakhs as stamp duty and Rs 60,000 as the registration fee by registering the estate at Rs 60 lakhs. If Ram had to register the actual value of the land, Rs 80 lakhs, he would be responsible for paying Rs 4.80 lakhs as stamp duty and Rs 80,000 as the registration fee.

The investment has doubled for Shayam, who purchased the property five years ago for Rs 40 lakhs. However, according to the new long-term capital gains tax limit, his cumulative capital gains will be counted at just Rs 20 lakhs (if the purchase trade value is deemed to be Rs 60 lakhs) and taxed at 20 percent. A tax payment of Rs 4 lakhs will mean this.

Shyam will be responsible for paying Rs 8 lakhs as LTCG tax if the property was reported at its actual value. Owing to this under-reporting of the trade, the government may lose out on the same sum that Ram and Shaym earn.

Real estate loses its affordability in a system riddled with such activities and becomes a vehicle for parking uncounted currency. This is why the Benami Dealings (Prohibition) Amendment Act, 2016, was enforced by the government to regulate fraudulent activities in the real estate of India. More legitimate buyers will enter real estate as the difference between the demand and the lead value of properties declines.

In the hope of saving on excise duty and registration fee fees, even legitimate consumers fell victim to such arrangements. They are literally forced to turn their white money into black, so they don’t really have any black money, in order to succeed in the transaction. Irregular adjustment of circle rates does more damage to the whole scheme than is noticeable at the start, says a Lucknow-based lawyer, Prabhanshu Mishra.

Caution term for buyers

Find out about the circle rate and the prevailing selling rate of the property before you start negotiating a price quoted by the seller. Keep the transaction as similar as possible to the circular pace.

Although this does not always happen, under-reporting may lead you to be in trouble. Register the property for the exact price you have paid for it in the best interest.

It would be better not to engage with sellers who are searching for the offer to make unaccounted currency.

Banks can finance only a portion of the purchase value at which the property will be reported. If the bank is concerned, you will have to show the real existence of the deal.

Market prices are representative of a property’s potential and the area it is situated in. Studying the price pattern is very relevant before picking a property or writing it off.

Circle prices can in some areas, be higher than market rates. You will have to pay the stamp duty and the registration fee, depending on the circle cost and not the real amount, if you were to buy in a place like that.


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