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Indian Real Estate News : Mumbai
Circle rates short-circuit MARKET
Source: The Times of India Aug 22, 2014
Buyers and sellers of property are in trouble in many parts of the country owing to an aberration where the MARKET prices have fallen below their respective circle rates, affecting transactions.

PRABHAKAR SINHA writes

The current MARKET prices of property have fallen below the circle rates owing to the subdued realty MARKET in many locations like New Friends Colony, Kalindi Kunj, and Noida in the NCR; Behala, Thakurpukur, Kolkata Main and Lake Town among others in Kolkata, and in small cities like Bhopal.

There are many other cities and localities where this aberration has surfaced, affecting property transactions adversely .

The West Bengal government cut the circle rates after the Confederation of Real Estate Developers' Association of India (Credai) raised the issue in Kolkata. Now, for instance, the circle rate for office space in Salt Lake Sector V has been brought down to Rs 4,500 per sq ft from Rs 8,000 sq ft.

Developers and stakeholder discussed this concern at the recently held National Convention of Credai at Jakarta and decided to raise it strongly with the other state authorities as well.

As the circle rates are higher than the market price, the buyer has to pay stamp duty at a higher rate than at what he bought the property; the transaction also attracts tax men to the buyer as well as the seller.

Sachin Garg, a property consultant who deals in New Friends Colony, said there is hardly any transaction in the area for the past one year as the real estate prices have fallen below the circle rates.

The circle rate in New Friends Colony is Rs 6,45,000 per sq metre as against the prevailing market rate of around Rs 5,00,000 per sq metre. If one buys a 300 sq metres property, it would cost him around Rs 15 crore at the rate of Rs 5,00,000 per sq metre; but, when calculated on the circle rate, the putative cost works out to Rs 19.35 crore! And, the stamp duty and tax has to be paid on this amount.

A senior consultant at Cushman and Wakefield said that a buyer in this area would have to pay stamp duty which is 6% higher than what he would have paid if it were calculated on the actual MARKET rate. So, in this case, he will have to pay 6% of Rs 19.35 crore and not the 6% of the transaction value of 15 crore. In this way , he will have to shell out Rs 26.10 lakh more as stamp duty .

A similar situation prevails in Bhopal where builders are forced to launch projects in the affordable range at around Rs 2,200 per sq ft to Rs 2,700 per sq ft to attract buyers. But the circle rates in the area are Rs 2,400 per sq ft and Rs 3,300 per sq ft, respectively . Vipin Goel, the CMD of Raksha Builder, said that this not only forces buyers to pay higher stamp duty, but also attracts the scrutiny of income tax department.

Goel says that the I-T officials take the line that the difference between the price calculated at circle rate and MARKET value at which developers sell apartments must be the developers' black income. Therefore, the tax department raises the tax demand at the rate of 33.99% of the difference.

Similarly , the tax department, assuming that the buyer must have paid the difference from unaccounted income, counted income, raises the demand on the difference of the value calculated at circle rate and MARKET price on buyers also. Goel said that this has forced buyers to postpone their decision to buy, which has affected the sector adversely. A consultant at Cushman and Wakefield said that there are procedures to contest the tax demand.But, for this, buyers and sellers must hire tax lawyers. However, there is no way that one can avoid paying stamp duty at circle rate even if the MARKET price is lower than that.

A senior stamp duty collecting official in Delhi said that most of these circle rates were fixed when the prevailing market rates were very high. When Rs 6.45 lakh per sq metre was fixed as the circle rate for New Friends Colony , the market price was around Rs 8 lakh per sq metre. But, now, as the market price has fallen below the circle rate, the department is likely to review the circle rates soon, the official said.

But, despite the prevailing market rates in various locations of Noida being lower than the circle rate, the government increased the circle rate by 10% recently.

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