Delhi Circle rate leaves property owners in dire straits due to market value mismatch

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By PTI IST (Released)

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According to data compiled by India Sotheby’s International Realty, market rates in many settlements falling under Category A are well below the circle. On the other hand, there are many settlements in category B where the market rates are much higher than the circle rate.

Several landowners in the nation’s capital are struggling to sell their properties as these fall into settlements marked with circle rates – the minimum price imposed by the government – much higher than the actual market values.

On the other hand, there are other settlements where circle rates are well below prevailing market rates, leaving even the authorities to worry about possible loss of tax revenue.

Experts believe that the solution in both cases lies in either streamlining circle rates or reclassifying settlements based on prevailing trends and facilities. Circle rates are the reference price of the property, below which one cannot register his real estate transactions.

According to data compiled by India Sotheby’s International Realty, market rates in many settlements falling under Category A are well below the circle rate of Rs 7.74 lakh per square meter. For example, market rates at Panchsheel Park are Rs 3.3 lakh per square meter, at Maharani Bagh Rs 4.6 lakh and New Friends Colony Rs 3.5 lakh.

On the other hand, there are many settlements in category B where the market rates are much higher than the circle rate of Rs 2.46 lakh per square meter. For example, the market rate in Defense Colony is Rs 6.7 lakh and in Greater Kailash-I Rs 5.2 lakh per square meter. Because of these anomalies, many buyers and sellers are having difficulty closing deals.

“Along with my brothers, I inherited a 1,008 square meter plot of land at Panchsheel Park, South Delhi. For the past 10 years, we have unsuccessfully tried to sell the property but to no avail. In the case of my property facing Ring Road, the price according to circle tariffs is Rs 78 core, while the market price of my freehold land is Rs 45 crore,” Jasraj Singh said.

Circle rates in Grade ‘A’ settlements increased ninefold from Rs 86,000 per square meter in 2010 to Rs 7.74 lakh per square meter in 2020, he pointed out.

Amit Goyal, CEO of India Sotheby’s International Realty, noted that difference of more than 10% between circle rates and chord values ​​of property results in tax penalties under Section 43CA of the Act of 1961 on income tax.

“Both the buyer and the seller suffer losses in transactions where the circle rate is higher than the market rate. While buyers have to pay higher stamp duty because the property cannot be registered below circle rate, on the other hand, the seller’s tax liability increases due to notional gains,” Goyal said. .

In Category A localities like Maharani Bagh, New Friends Colony, Panchsheel Park and Vasant Vihar, market rates are significantly lower than circle rates, especially for larger plots. And in B-grade micro-markets like Defense Colony, Anand Lok, Neeti Bagh, and Greater Kailash, real market rates are well above circle rates, leaving room for cash transactions.

Goyal suggested that some of these micromarkets should be moved from category A to B and some from B to A to bring them closer to real prices, which he said would lead to increased real estate transactions and higher incomes.

Until 2018, under section 43CA of the Income Tax Act 1961, the value of stamp duty (circle rate) was treated as sale consideration for the transfer of property in the event that the circle rate exceeded the declared transaction value. To relieve property developers and buyers, the 2018 finance law provided that these deeming provisions only apply when the difference between the sale/purchase consideration and the circle rate was greater than 5%. Later, the 2020 finance law increased this threshold from 5% to 10%.

In November 2020, the Center decided to further increase the threshold from 10% to 20% under section 43CA of the Act for the period from November 12, 2020 to June 30, 2021, in respect of the sale only main residential building. value units up to Rs 2 crore.

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