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What is the Circle Rate of a Property - Meaning and Impact
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If the circle rate is higher than the market value, it means the transaction happens at a lower rate than the one established by authorities and the difference, making up the profit, will be taxed under Section 56(2)(x) of the IT Act.
The circle rates are revised periodically in alignment with the changes in the market dynamics.
Yes, circle rates can vary from one area to another within a city based on the dynamics of the location and type of the property.
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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The decision to buy a property requires many considerations, among which price is a crucial one. There is the matter of setting your own budget and then there is the matter of available market rates. Transparency of the rates is much-desired by all property buyers. The prices of the property vary based on multiple factors. When exploring the prices, you will come across the term circle rate.
What is circle rate, and how does it impact your buying decisions? Read ahead as this article answers the major questions and queries about the circle rate.
Defining the Circle Rate of a Property
Circle rate, known as reckoner rate in Maharashtra and collector rate in Punjab, Haryana, and Uttar Pradesh, is the lowest price at which a real estate property can be traded. A real-estate transaction will not be eligible for registration under the circle rate. The respective district administration determines a standard rate for all the real estate properties across the cities.
Lands in India are vast, and one locality can be quite different in terms of infrastructure, financial accessibility, and overall lifestyles. It is only natural that the circle rates vary greatly from one location to another. As the infrastructure of the localities changes and the ways of life evolve, the circle rates can also change from time to time.
Factors Affecting the Circle Rate
The major factors influencing the circle rates of different locations are:
Location and Infrastructure
The geographical location of a property influences its circle rate to a great extent. Urban areas with excellent infrastructure, road connectivity, public transport, and basic amenities like schools, hospitals, and shopping malls usually possess higher circle rates than underdeveloped or offbeat locations with limited amenities.
Real Estate Demand and Market Trends
The market conditions have direct implications on the circle rates. If an area is facing demand due to industrial development, job centres, or new infrastructure activities, there is a high chance that the authorities will increase the circle rate. In other areas with reduced demand or fewer real estate transactions, the rate may remain the same.
Property Type and Usage
The circle rate is different depending on whether the property is residential, commercial, or agricultural. Commercial properties will typically have a higher circle rate than residential ones because of their potential to generate revenue. Likewise, agricultural land can have lower rates unless they are converted to urban use.
Government Policies and Economic Factors
Government adjustments, inflation, and economic factors also affect the rates. They are adjusted periodically to keep pace with market prices and prevent undermining of property values to ensure transparency in property transactions.
Circle Rate for Stamp Duty Calculation
Circle rate plays an important role in calculating the registration and stamp duty associated with a property purchase. These fees add up to the overall purchase cost and, therefore, are important to consider. The circle rate is first used to calculate the property value, and a certain percentage of the property value equals the stamp duty.
Multiply the circle rate per square foot or meter by the property’s complete built-up area to calculate the property value. Let’s say you have purchased a property worth INR 10 lakh somewhere in Maharashtra. The stamp duty for the respective location is 5%. You will be paying INR 50,000 as stamp duty.
Impact of Circle Rate on Homebuyers
The circle rate can significantly impact the homebuyers; here’s how:
Impact on Registration and Stamp Duty
The circle rate helps determine the property value, which further dictates the registration and stamp duty. It means any increase in the circle rate will increase the associated costs.
Minimum Property Valuation
Circle rates make sure that the properties are registered as per or above the minimum cap, assuring transparency and eliminating any chance of tax evasion.
Influence on Loan Sanctioning
When homebuyers opt for a loan, the circle rates are checked. If the property transaction is occurring at a lower rate than the circle rate, the lending amount can be limited to a certain point.
Tax Implications
Buying property at prices lower than the circle rate can increase the tax burden. The difference between the circle rate and the price paid is considered as 'other income' for the purchaser under Section 56(2)(x) of the Income Tax Act.
Summing Up!
Stay updated with the latest circle rate of the locality where your aimed property is situated. It will allow you to avail fair bargain from the seller and also, make the most beneficial deal on your home loan. Find the required financing from Kotak Mahindra Bank Home Loan Solutions and make informed decisions on your property purchase.
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