What are ready reckoner rates?

What are Ready Reckoner rates?

What is the significance of Ready Reckoner/Circle rates?

The Ready Reckoner (RR) rate, as it is referred to in Mumbai, is also known as the Circle Rate in Delhi. This rate is the government’s estimate of minimum property values in various locations. The rate differs in every state, city and in different localities in those cities. Authorities determine the price of real estate in a particular locality, based on several factors. Based on these factors, a benchmark is set, below which no property transaction can take place in that particular locality. This benchmark is known as the Ready Reckoner/Circle rate. It is the minimum price on which the government will charge stamp duty and registration fees.

Example: Suppose that you purchased a residential property at a market price of Rs 6,500 per sq ft. If the ready reckoner rate for the locality is Rs 5,500 per sq ft, then, you will have to pay the stamp duty and registration charges on the higher value, i.e., the market value. In any case, property registration in that locality cannot take place below the minimum value defined by the ready reckoner rate.

The RR rates are typically lower than the current market rates of properties in a particular area. The rate is reviewed periodically and revised, to bring it closer to market rates. As real estate transactions take place in the private realm and the price is often not disclosed, state governments need a benchmark, to ensure that they do not lose out on an important source of revenue.

See also: What is Stamp Duty Rates & Charges on Property?

How does the Ready Reckoner rate affect real estate transactions?

While RR rates specify the minimum amount at which properties can be sold in an area, there is no maximum limit above which a property cannot be sold. This leads to a significant difference between the RR and market rates. Most property transactions in India take place on the basis of the market rate in a particular locality. The stamp duty and registration fees, to be paid by the home buyer, are calculated on the basis of this market rate. Therefore, a big difference between the RR rate and market rate, leads to a loss of revenue for the government. In rare cases where the RR rate is higher, the stamp duty and registration fees will be calculated on the RR rate. On the other hand, higher RR rates discourage home buyers from registering their properties. By periodically revising RR rates and bringing them closer to market rates in every locality, the state government can increase transparency in real estate transactions and also ensure that they do not lose out on revenue.

Importance of Ready Reckoner rates for home buyers

The RR rate of properties in a particular area, is a good indication of the amount of money a potential home buyer will have to shell out. Market rates of properties are almost always higher and property prices in an area tend to increase, when the RR rate is expected to be increased. It is also beneficial for buyers to purchase property in an area, where the gap between the RR and market rates is relatively smaller, especially if the purchase is being financed by a home loan.

Where to find ready reckoner rates?

To know the current ready reckoner rates in a particular locality, it is important to check the government websites. The government revises the ready reckoner rates from time to time. To check the ready reckoner rates in Mumbai, you can visit the IGR Maharashtra website. The Maharashtra government’s department of registration and stamps, is responsible for preparing an Annual Statement of Rates, i.e., the ready reckoner rates.

See also: All you need to know about IGR Maharashtra

Ready Reckoner rates: Problem areas

In order to save taxes, buyers often collude with sellers and agree to register the property based on the circle rate, while the buyer is made to pay, based on the prevalent market rate. This helps sellers to save on capital gains tax, while it helps buyers in saving on stamp duty. The buyer simply makes the remaining payment to the seller though cash. This leads to revenue loss for the authorities.  This is why authorities periodically change the RR rates, in order to keep it closer to the marker rate.

Impact of selling properties below the ready reckoner rates

The ready reckoner rate is the minimum value set by the government, based on which property transactions take place. If the transaction value is lower than the prevailing ready reckoner rates of a locality by 10% or more, it could lead to a tax burden on the buyer and the seller. According to Section 43CA of the Income Tax Act, selling a property at values at least 10% lower than the ready reckoner rate, also known as circle rate, can result in a penalty of 35% of the difference between the original price and the revised price. It will also be applicable on the property buyer.

The slowdown that the realty sector witnessed after the COVID-19 pandemic hit in 2020 and developments like demonetisation in the past, had led to significant rise in unsold inventories. Realty developers had struggled to sustain the margins with no further scope to cut prices. Consequently, in 2020, the Confederation of Real Estate Developers’ Associations of India (CREDAI) and the National Real Estate Development Council (NAREDCO) suggested that suitable amendments should be made in the income tax laws, along with changes in ready reckoner rates, to keep them in line with current market prices.

Ready reckoner rates in Mumbai: Latest updates

In June 2021, the Brihanmumbai Municipal Corporation (BMC) had proposed to collect property tax based on the latest ready reckoner rates, which would increase the property tax by 14%, in a proposal from the Assessor and Collector Department made before the civic body’s standing committee. However, the increase will not impact properties below 500 sq ft. If approved by the standing committee, the revision of rules will come into effect from April 1, 2021 and will be applicable till March 31, 2025.

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