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The Delhi government has reduced the circle rates for all categories of properties for the next six months to provide support to the real estate sector. Localities in Delhi are divided in eight categories --A to H. Category A being the most affluent one.

Let's understand what is circle rate and how reduction in circle rates will impact your cost of homebuying.

What is circle rate?

It is the minimum price at which a property has to be registered in case of its transfer. The rates are determined by state governments and are revised from time to time according to market dynamics. In fact, circle rates differ within cities in the same state, and among various localities of a city. These rates are an indicator of likely prices of properties in various areas. A property has to be registered either on the actual transaction value or the minimum rate set by the government, whichever is higher. In rare cases, where the actual price paid by a buyer is less than the circle rate, the property has to be registered based on the circle rate.

How will the reduction in circle rate benefit you?

When you register a property, you have to pay stamp duty charges. The reduction in circle rate will lead to lower stamp duty charges in case the property is getting registered at the circle rate. The property can be registered at the transaction rate if it is higher than the circle rate. For registration below circle rates, special permission has to be taken. The stamp duty charges are paid on the price on which the property is registered. So, in case the transaction price is higher, stamp duty will be paid at the transaction price.

Experts feel that properties where the circle rate is higher than the market price will benefit the most. “In Delhi there are areas such as Panchsheel park where the circle rate is much higher than the market rate, there the transactions were stalled as higher circle rates lead to additional tax liability on the part of the buyer as well as the seller. The buyers in this segment will benefit most due to circle rate reduction," said Pradeep Mishra, a real estate expert.

In case the circle rate is higher than the transaction rate, it leads to additional tax liability for the buyer as well as the seller. The difference between the circle rate and transaction rate is added to the buyer’s income and taxed as per slab while the seller will also have to pay capital gains based on the circle rate rather than the transaction rate.

However, in the Budget 2021, the government has proposed that in case the differential between the circle rate and transactional value is up to 20% there will be no additional tax liability on the buyer or the seller. Currently, the limit is 10%.

Experts feel that the government should also look at reducing the stamp duty charges in order to boost sentiments and benefit small and mid segment homebuyers.

“States like Maharashtra have reduced the stamp duty charges which has benefited the homebuyers directly and the state has seen record transactions happening in the past 3 months. The Delhi government should also look at reducing the stamp duty charges" added Mishra. Stamp duty charges in Delhi are at 4% in case the property is registered in the name of a woman and 6% in case of a man.

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