Circle Rate explained What is Circle Rate? How it differs from Market Rate when it comes to property registration and payment of stamp duty?
Whenever you go for the registration of a property You might have heard that the registration of the property will be done on the circle rate Sometimes it is done on the market value What is the difference between these 2 values In all the developed countries, registration is done on the actual market rate But why there are 2 different types of rates in India? Why the registry is not done on the market value in some cases and in which cases it is done What is the difference between circle rate and market value.
To understand circle rate, we need to understand the property buying process and how the property is registered…..
Let’s say there is a seller A who is selling a property to a person B and B is a buyer of this property and let’s say the transaction takes place of Rs 1 Cr Let’s say B promises to buy the property in Rs 1 Cr to seller A and B transfers Rs 1 Cr to him After that, seller A will register the property for B and will give the possession Let’s say this is the property Its registration The stamp duty and registration charges are to be paid 4-10% of the property value when the registry is done at the sub-registrar office So how this 4-10% of the property value is decided that on what value stamp duty and the registration charges will be paid Here comes an important concept of circle rate.
By definition, the circle rate is the minimum rate at which stamp duty and registration charges are collected by the state. To understand this, we need to understand the difference between market value and circle rate Market value depends on supply and demand Let’s say in this case, seller A and Buyer B agreed on a price of Rs 1 Cr But the circle rate may be a bit more or a bit less. The state government fixes the circle rate and that rate is the minimum rate at which the property will be registered Let’s understand the difference between market value and circle rate in more detail As I told before, the market value depends on supply and demand As we saw in this case that Rs 1 Cr is the actual price which is been paid by the buyer so that is the market value. But it’s not necessary that Rs 1 Cr is the circle rate also. So the market value is a dynamic value that depends on market forces, But the circle rate is a periodic update which is timely updated by the state government So this can be updated any time between 6 months and 1 year So it’s not a dynamic value Because these are periodic updates, it always lags behind the market value.
So we understood the difference between the market value and the circle rate. Now let’s say the market value is more than the circle rate, So on how much rate the .property is registered
So let’s take case 1, Market value > Circle rate In this, stamp duty and registration charge is paid on the market value And in case 2, if market value < circle rate then the stamp duty and registration charges will be paid at the circle rate. According to the definition, circle rate is the minimum property value on which the stamp duty and the registration charge is collected, So let’s say if the market value is less than the circle rate then the stamp duty and registration charge is to be paid on the circle rate And if the market value is more than the circle rate, then we have to pay on higher of the 2 So obviously, we have to do the payment on the market value. Now let’s understand both the cases by example Let’s say the market value, in any case, is more than the circle rate For example, if the market value of a property is Rs 1.5 Cr and the circle rate is still not updated according to the market value and it may be Rs 1 Cr In this case, if the stamp duty and registration charges are 5% then that will be paid on the market value which is Rs 1.5 Cr So 5% of Rs 1.5 Cr will be Rs 7.5 lakhs.
So in this case, the buyer and seller thinks that if the market value is more than the circle rate then why pay extra duty It’s better to show the value Rs 50 lakhs less. So the buyer and seller may agree to settle extra Rs 50 lakhs in cash. So they might decide to do the payment of Rs 50 lakhs in cash and let’s register the property at Rs 1 Cr In that case, the stamp duty buyer has to pay will be Rs 5 lakhs and Rs 2.5 lakhs benefit will be there. So in this case, the buyer saves the stamp duty and registration charges and the seller saves on capital gains tax So the seller has the benefit of paying the capital gains tax at a less rate because he showed the market value less So in this case, Rs 50 lakhs is the unaccounted money which is also called black money Because no tax is paid on it and to curb this, the concept of circle rate was introduced in India.
Because of this, the government says that we don’t care about the market value and we have to cover the minimum stamp duty Otherwise, maybe people would show the selling price of Rs 1.5 Cr property as Rs 15 lakhs So the government will say there’s no problem if you’re selling at Rs 15 lakhs But still, you have to pay the stamp duty on the circle rate which is Rs 1 Cr So this was the case when the market value was more than the circle rate.
Sometimes, it may happen that the market value is less than the circle rate Usually, this happens when the real estate prices fall So this may happen in a downward market that the circle rate prices are high and the market value is less If we see examples in that case, Let’s say the circle rate is Rs 1 Cr and the market value is reduced to Rs 70 lakhs So what will happen in this case? The stamp duty and registration charge is to be paid on the circle rate which is Rs 1 Cr according to that, it is Rs 5 lakhs So in this case, the buyer pay higher stamp duty and registration charges and the seller pays higher capital gains tax So if it would have been above Rs 70 lakhs then the buyer would have to pay less stamp duty and the seller would have to pay less capitals gains tax because the actual market value is Rs 70 lakhs.
So in this case, you can appeal to the sub-registrar. You can say that you want to register your property at the market value and the market value is now less And you can request the sub-registrar to do a survey that whether the market value is actually less than the circle rate and it needs to be updated But what happens in this case there is an unnecessary delay because you have to wait for the reply of the registrar or the deputy commissioner So when you have to borrow a home loan, this may create a problem But the option to appeal is always open If you want, you can pay the stamp duty and registration charge on the market value So circle rate is called circle rate in some states In some other states, it is known as guidance value And in some states,
it is known as guideline value In some states, it is also called ready reckoner rate So the purpose of all these values are same the only difference is the name So circle rate, guidance value, guideline value, or ready reckoner rate are different in different zones of the cities So let’s say the price of a zone is high. Then the circle rate will be according to that So the state government decide the circle rate of different zones through a survey I think you might have got an idea about the circle rate after watching this video and how it is different from the market value and how the stamp duty and the registration charges are paid If the market value is more than the circle rate, or if the market value is less than the circle rate