An Explainer: Circle Rate
Authorities determine the price of real estate in a particular locality on the basis of several factors. After taking these factors into account, they set a benchmark below which any real estate transaction cannot take place in a particular locality. This benchmark is called the circle rate.
A city’s various colonies are divided into categories on the basis of development, real estate demand and prices. These categories have specific circle rates for real estate transactions. Also known as ready reckoner rates and collector rates, circle rates are subject to periodic revision and can be tweaked depending on development and price growth in an area.
While a circle rate determines the threshold below which a transaction cannot take place, there is no cap above which a property cannot be sold. So, most real estate transactions in India take place on the market rate, or the prevalent property rate in a particular locality. However, the stamp duty and registration fees to be paid by the buyer are calculated on the transaction value, that is the market rate.
A wide difference between circle rate and market rate leads to loss of revenue for the government. People sometimes tend to undervalue their property to restrict stamp duty and registration payouts, and accept the balance amount off the record. This allows the flow of ‘black’ money into real estate. Higher circle rates, on the other hand, discourage buyers from registering their property.
By bringing the two rates closer to each other, authorities can bring in more transparency and also plug revenue leakages.