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The Idea of Increased Circle Rates

Highlights

  • Understanding Circle Rates

  • Circle Rate-Market Price Lag

  • Why people are cribbing

Authority Friday, 28th April 2017   Editor: Ananya Gupta

People friendly laws are a myth in India. Government keep on enforcing laws and people keep on finding ways to break them. This tradition has been percolated down to each individual in India and it is close to impossible to cease this trend and start a new wave where everyone is honest and follow every rule. Neither rule makers nor the rule breakers are honest, which is why something like “Jugaad” has evolved. 

Understanding Circle Rates:

Government took a move to fix this corruption-saturated spiral by introducing the concept of circle rates in Delhi in 2007. The price of a property is determined by the demand-supply mechanism. Government, on the other hand, determines its own price of the property. Now, the buyer registers the property at the highest of these two prices and is required to pay some percentage of stamp duty and registration charges on the value on which the property is registered. This amount determined by the government is called Circle rate and it is different for different locations. In Delhi, the locations are divided into 8 categories (A-H), category A having the highest circle rate. 


Circle Rate-Market Price Lag:

This circle rate should be as close to the market price as possible. If the circle rate is less than the market price, dishonest people would register the property at circle rates with the government and would be earning the remaining money illegally, making it black money.
Government has increased circle rates on agricultural land and farm houses by 100% and 150% respectively.

The circle rates in different categories are as follows:

Category

2012 Rates/Sq. Meter

2014 Rates/Sq. Meter

A

645,000

774,000

B

204,600

245,520

C

133,224

159,840

D

106,384

127,680

E

58,356

70,080

F

47,140

56,640

G

38,442

46,200

H

19,361

23,280

Thus, the gap between circle rates and market rates is narrowing with an increase in circle rates. Resultantly, the scope of using black money is minimizing and more revenue is going to the government. 

Why people are cribbing:

As far as real estate is concerned, there are two types of people: buyers and sellers. None of them is happy with the decision of government of increasing the circle rates. Here is why!

Buyers:

  •    They will have to pay more stamp duty and registration charges than before. 
  •    The use of black money is restricted which means buyers with black money will lose their biggest hope of transferring their black money.
  •    At places where circle rates are higher than market prices, even genuine buyers are at a loss because if circle rates were equal to the          market rates, they would not have to spend extra money toward the payment of stamp duty and registration fees. Since it is unfair for them to pay more than the genuine amount, they will cut their demand for property.

Sellers:

  •    Since no black money will be indulged, seller will have to account for their capital gains and will have to pay tax on the entire capital gain against their tax payment on the small portion of capital gains what they actually showed in the books of accounts previously.


Effects:

The very aim of government to increase the circle rates is to curb the ill practice of black money and increase the revenue. Earlier, the market value of a property of used to be 2 Cr and its circle rate used to be 1.4 Cr. Buyer used to register the property at 1.4 Cr and used to pay the remaining consideration in cash, transferring his black money to the seller. Buyer also had to pay stamp duty and registration charges on 1.4 Cr instead of 2 Cr.  However, now that the government has increased circle rates, making them even higher than the market rates at some places, there has left no scope to give or accept black money. People are reluctant to buy properties because they don’t want to give more stamp duty than they actually should. It would have been fairer if circle rates were almost equal to the market rates. This way, genuine buyers would have paid the stamp duty on circle rates without incurring a loss and unscrupulous buyers would have got a lesson and they would have been forced to execute honest transactions. While this move of government is reducing the flow of black money and increasing the revenue, it is not favoring genuine buyers and the real estate industry because higher circle rates are increasing the value of already overpriced properties.Thus, stagnating demand and putting real estate industry under more burden.

No doubt, it is a positive move from government and a greater revenue collection would help government to invest in more developmental and infrastructure projects. But, again the common man who was earlier easily evading stamp duties, will have their balance sheets in trouble and the biggest disadvantage will be passed over to the genuine buyers sandwiched between government and black money holders.