Circle rates are the minimum value assigned to a category of properties at which they may be registered meaning that the government would charge stamp duty at that value even if the transaction value is lesser, or on transaction value if the transaction took place at a higher price than the circle rate. The idea is that if circle rates are same or close to market rates then the black money can be curbed, and more importantly the government gets its 5-7% cut each time. Perfect in theory. But in practice the circle rates have not been fixed as per market rates. In fact the categories formed for the circle rates were copy-pasted from the categories created for the calculation of house tax earlier. House taxes not being too heavy no one bothered to oppose them and actually colonies which were called “A” felt rewarded and most welcomed it. But when circle rates were formed colonies like New Friends Colony and Golf Line were placed in same category. Defence Colony and South Ex were also put into same category. The market rates in these colonies were drastically different then and are very different even now.
Circle rates for some category A colonies are way higher than their market rates and that leads to a major problem in selling properties in some colonies in category A. Take New Friends Colony for example. Beautiful colony with wide roads and a generally very good ambience and mix of people. The circle rate for a 500 sq yds house is about 31 crores (or till june 2022 it is about 26 crores after 20% temporary reduction of circle rates). The market value of houses is about 15-18 crores in blocks A, B and C. D still has a higher price, but majority of New Friends Colony is in A, B and C blocks. And that’s about 800 houses in NFC itself. There has been various appeals to rectify this but it hasn’t been resolved yet.
On the other hand there are colonies in Category B where the actual prices are even higher than category A colonies but the circle rates are lower than even 40% of the market price. Similarly there are colonies in category C where circle rates are like 20% of market value. So curbing black or getting full tax isn’t really happening. Rather deals halted or reduced by 80% in areas like NFC.
The problem with buying properties in these areas is not just the payment of higher stamp duty. IT sends notices and asks for additional tax from the owner saying that they have undervalued the property (compared to circle rate which they take as market value because it suits them) and so either must have paid black money or have had a windfall gain. They also ask for taxes from seller saying the same thing. People in general are scared to get enquiries from IT and get into a legal thing so the percentage of people wanting to buy in these areas goes down.
Now, if these rates were being fixed by some professional company all this would be completely unacceptable as they would be getting paid. Government is just being paid 5-7% meaning thousands of crores (or lakhs of crores over a long period), so no-one says anything. That was sarcastic. Anyways, the right way to do it would be to find out market values aggressively each quarter or so, fix the circle rates according to location, construction, age, block of locality, and also factor in things that decide market rates. Like a shermukh property should have a lower circe rate. And the government should keep it at a lower value whenever in doubt. People should have a mechanism whereby they are allowed to sell their property at lower than circle rate without being harassed by IT. Maybe they can offer their property to IT at the circle rate and if they don’t consider it worthwhile they can allow hi to sell at a lower rate. That may seem a lot of work but we are paying crores in revenue so why can’t they get to work and do this? Because no-one demands. And because they are lazy and are used to not delivering value for people’s money.
The circle rates are being looked at right now and I hope some of these things get incorporated.