WHAT IS READY RECKONER RATE?
The Ready Reckoner rate, commonly known as the circle rate, is the lowest price at which a property must be recorded in the event of its transfer. All state governments publish area-based ready reckoner rates of properties once a year in order to prevent the avoidance of stamp tax via the undervaluation of agreements and to reduce disputes over the amount of stamp duty. Maharashtra, for instance, publishes the ready reckoner rate for Mumbai.
EXAMPLE OF READY RECKONER RATE
If you decide to purchase a particular property in a particular neighborhood with a Ready Reckoner Rate of Rs. 6000 per square foot, but the market price is Rs. 7000 per square foot, you will be required to pay the registration and stamp duties on the market price as it is higher than the Ready Reckoner Rate (RRR).
For another example, let’s say you want to purchase a certain property with a Ready Reckoner Rate of Rs. 6000 per square foot and a value of Rs. 4000 per square foot. Given that the RRR is more expensive than the market price in this situation, you must complete all the necessary paperwork.
As a result, no immovable property may be registered at a rate less than the Ready Reckoner Rate set by the State government.
Once more, there are places where the RRR is typically lower than the rates or actual market value of certain properties. The Ready Reckoner Rate (RRR) is examined and modified annually to keep it more closely aligned with the market rate. For instance, the Pune Chinchwad Municipal Corporation (PCMC) determines and frequently updates the ready reckoner rate in Pune.
To ensure that the state is not missing out on such a significant source of income, the state governments established a baseline. A fixed benchmark is essential because the majority of real estate transactions are often conducted in private settings and the value is rarely published. This keeps both the buyer and the seller in a win-win scenario.
CALCULATION OF READY RECKONER RATE
Determine the built-up area of the property by factoring in things like the number of stores, the facilities, the age of the structure, the size, and more (depending on the type of property, such as a residential or commercial unit). If two built-up area numbers are supplied, the original value and the one with 1.2 times the carpet area, consider the value that is higher. Use the formula below to calculate the property’s worth at the ready reckoner rate after deciding on the property’s location.
Use this formula if it’s a flat:
- Built-up area x the ready reckoner pricing for apartments in rupees per square meter
- Covered parking spaces multiplied by 25% of the ready reckoner fee for the property’s unit area.
- Parking spaces available x 40% of the ready reckoner rate of developed land in that area.
Visit the official e-Circle Rate Calculator supplied by the government to figure out circle rate in Delhi. Similar to this, one may view the Annual Statement of Rates and ready reckoner rates on the IGR Maharashtra web-page.
READY RECKONER RATE AND ITS AFFECT ON REAL ESTATE TRANSACTIONS
Even if Ready Reckoner rates establish the minimum price at which properties can be sold in a region, there is no maximum limit above which a property cannot be sold. As a result, there is a big difference between the Ready Reckoner and market pricing. The bulk of real estate transactions in India are based on the neighbourhood going rate. The stamp duty and registration fees that the home buyer must pay are calculated based on this market pricing. Therefore, when the RR rate is considerably different from the market rate, the government loses money. In the rare instances where the RR rate is higher, the stamp duty and registration charges will be calculated using the RR rate. On the other hand, higher RR rates discourage home buyers from registering their properties. The state government may regularly adjust RR prices and bring them closer to market rates in every region to encourage transparency in real estate transactions and ensure that they do not lose money.
IMPACT OF SELLING PROPERTIES FOR LESS THAN THE READY ROCKONER RATES
When acquiring a property, the buyer is required by law to pay a minimum amount of stamp duty, sometimes referred to as the ready reckoner rate or circle rate. If a transaction occurs at a price below the RRR and the difference is 105 or less than the local average rate, both the buyer and the seller must pay a penalty.
It would result in a significant tax burden for them. Selling any property for less than the Ready Reckoner Rate (RRR) is punishable by a 35% penalty on both the buyer and the seller, according to Income Tax Act Section 43A. (market price and RRR).
READY RECKONER IMPACT ON DEMAND
The Ready Reckoner Rate or the market rate, whichever is greater, is the foundation on which state governments collect registration fees or stamp duty. These fees essentially represent the transaction value that a buyer pays when purchasing any type of property. From state to state, this rate fluctuates.
As an illustration, several Indian states have a high value of 8–10% of the whole transaction amount. It is quite difficult to locate a location with a market rate that is lower than the RRR. When the initial purchase price is less than the ready reckoner rate, the buyer must complete the necessary paperwork (such as paying the stamp duty and registration fee) based on the established RRR. Because the buyer is required to pay more stamp duty than the real price, this results in an undesirable situation. Additionally, the seller would be responsible for paying extra capital gains tax.
Therefore, it is always a positive thing when the Ready Reckoner Rate is lower than or in line with the market value. Additionally, it benefits both the buyer and the seller and aids in reviving market demand for real estate.
IMPORTANCE OF READY RECKONER RATES FOR PROPERTY PURCHASERS
A trustworthy estimation of how much money a potential homeowner will need to pay is given by the RR rate of homes in a particular area. Market rates for homes are frequently higher and local property values frequently increase when an increase in the RR rate is expected.
It is favorable for purchasers to purchase real estate in an area where the gap between the ready reckoner rate and the market rate is comparatively less, particularly if the transaction is being funded by a home loan.
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