Circle rates hiked in Maharashtra: Know how it will impact your home buying4 min read . Updated: 15 Sep 2020, 10:26 AM IST
- The ready reckoner rates were increased on an average by 1.74% in Maharashtra. The highest hike was in the Pune district at 3.91%, while for Mumbai, the average hike was 0.6%.
While the real estate sector is already grappling with poor sales and high inventories, the Maharashtra government has increased the ready reckoner (RR) rates across the states. The changes will be effective from 12 September 2020. The move has surprised many as the government cut down the stamp duty charges by 2-3% percentage points last month.
“The increase in RR rates ran counter to all expectations. Increasing the RR rates after reducing the stamp duty in most areas of Maharashtra comes as a big surprise, to say the least. Bringing down the RR rate considerably at this point made more sense as it would have helped developers to bring down property prices to some extent," said Anuj Puri, chairman, Anarock Property Consultants.
The ready reckoner rates were increased on an average by 1.74%. The highest hike was in the Pune district of 3.91%, while for Mumbai, the average hike was 0.6%.
Omprakash Deshmukh, inspector general of stamps and registration, Maharashtra termed the hike as marginal. “This is a very small hike given the fact that the RR rates were last revised in 2017 and nowhere close to the hike seen in the past," said Deshmukh. “Between 2010-2015, the average hike was in the range of 10-25%. Therefore, this hike is nominal," he added.
However, experts believe this will act as a dampener and might hit homebuying activity in the state, especially ahead of the festive season “Reduction in circle rates would have been better as real estate sales are badly impacted and prices are stable in many of the major cities. It needs to be revised as per the existing market dynamics," said Mani Rangarajan, group COO, Housing.com, Makaan.com and Proptiger.com.
“Increase in circle rates is an arbitrary move by the Maharashtra Government to raise the revenue and has not been welcomed by the realty industry association," said Deepak Garodia, president, Confederation of Real Estate Developer's Association of India, Maharashtra Chamber of Housing Industry.
What are ready reckoner rates?
RR rates or most commonly known as circle rates are the minimum price at which a property has to be registered in case of its transfer. A property has to be registered either on the actual transaction value or the minimum rate set by the government, whichever is higher. These rates are an indicator of the likely prices of properties in various areas.
The circle rates are determined by state governments and are revised from time to time as per the changing market conditions. The circle rates differ within cities in the same state, and among various localities of a city. Even within localities, rates may differ based on the property type (residential, commercial or institutional), location, and size of the plot, and various other factors.
What does it mean for homebuyers?
Higher stamp duty charges: The state government collects stamp duty and registration charges on the value of the transaction or on the circle rate, whichever is higher when the property is bought or sold. Given the fact that the property prices have corrected at some places significantly, it is possible to find a property below the circle rates. The stamp duty charges will have to be paid at circle rates even if the price at which the buyer has purchased the property is lower.
For example, if a person buys a property for ₹50 lakh while the stamp duty value or circle rate value is ₹55 lakh, he will have to pay registration charges on ₹55 lakh and not ₹50 lakh. So, assuming a stamp duty charge of 8%, the actual cost of buying the house will be ₹50 lakh plus ₹4.4 lakh. So, if the circle rate goes up further to ₹57 lakh, the stamp duty charge will go up to ₹4.56 lakh, increasing the overall cost of buying a house.
Additional tax burden: Apart from this, the difference between the transaction value and circle rate value or stamp duty value is added to the income of the buyer, which may result in an additional tax burden for the buyer.
Also, for the seller, the capital gains tax will also be calculated on the stamp duty value despite the fact that the actual transaction happened at a lower price. There is an alternative here. You can get the valuation of the property done and request the registrar to register the property at a lower rate. In case you get a notice from the tax department, you can show the valuation report. Apart from this, you can file the income tax return and write a separate letter to the tax department with the valuation report.
Currently, relaxation is provided by the government in case the difference between transaction value and circle rate is 10%. In this case, the additional tax burden will not arise. However, experts feel there are places where the difference could be higher. “Home Buying in Maharashtra is going to suffer as there are plenty of places where circle rates are higher than market rates," said Garodia.