Circle rate is one of the most commonly used terms in a property market. However, the exact meaning and the importance of the same in case of property transactions remains a puzzle for a lot of people.
Simply put, circle rate is the minimum price at which a property is registered in case of a transaction. It entails the minimum price at which any land, residential, commercial and industrial property transaction should take place. In other words, it is the government’s perception on the real estate prices at a given time. It is determined by state governments and varies from state to state and location to location as well. Circle rate, being a government controlled mechanism, controls the value of various statutory taxes such as property tax, registration charges, stamp duty and capital gain tax to name a few. Hence, the significance of circle rate in a real estate transaction is imperative.
It is also known as Ready Reckoner Rate, Floor Price, etc.
Circle rate v/s market rate
Often, there exists a lot of confusion in the minds of various stakeholders regarding circle rate and market rate and its implication in case of a transaction. This is due to the continuous usage of these words interchangeably in real estate transactions.
Market rate, as the name implies, is the price of a property as governed by the market dynamics i.e. demand and supply. As the source of estimating these differ, there exists a significant difference between the market rate and circle rate.
Impact of circle rates on buyers and sellers
For the sale of a property, circle rate is used to calculate the registration charges and stamp duty applicable on the property as per the statutory norms. The stamp duty and registration charges are levied on the higher value of the two i.e. market rate or circle rate. From the seller’s side, even if the market value of the property is less than the circle rate, the capital gain tax would be applied on the value of the property as determined by the existing circle rate.
To a certain extent, circle rates also help in regularising the dynamics of a real estate market. For instance, if the circle rate increases, state can generate additional tax and if the circle rates decrease then there would be a lower tax burden on the buyer. However, these effects are likely to happen when the circle rate is higher than the market rate.
The disparity in circle rate and market rate indicates that the authority’s view is not in congruence with the market view. This amplifies the scope of black money in real estate transactions. In order to keep the difference as low as possible, circle rates need to be updated regularly as compared to the current yearly update since the market view is dynamic and keeps on changing.