The Circle Rate or Ready Reckoner Rate is a fixed value set by state governments for real estate properties like commercial and residential lands. The rates vary across cities, localities and states, and are updated annually based on the areas in the state.
The minimum rate for any property-related transaction is determined by the Ready Reckoner Rate. Therefore, no property transaction can take place below this predefined benchmark for a locality. The government calculates the stamp duty based on the Ready Reckoner Rate or the actual value of the transaction, whichever is higher.
It is important to note that the Ready Reckoner Rate is used to levy registration fees and stamp duty by the government for any property-related transaction.
Example of Ready Reckoner Rate
Imagine you’ve found a property you want to buy in a particular area that has a set price per square foot. This is called the Ready Reckoner Rate (RRR). But sometimes, the property might be worth more or less than the RRR.
If the property is worth more than the RRR, you’ll need to pay the registration and stamp duties based on the higher value. But if it’s worth less than the RRR, you’ll still need to pay the fees based on the higher RRR value.
The government sets this RRR price to make sure they don’t lose out on important revenue. They review and adjust the RRR every year to keep it close to the real market value. This helps buyers and sellers make fair deals and prevents any cheating.
How is the Ready Reckoner Rate calculated?
Calculating the Ready Reckoner Rate (RRR) for a property in your region requires a thorough understanding of the calculation method and the factors that affect it. Here are the steps to follow:
- Identify the Relevant Authority: Find out which government authority is responsible for setting the RRR in your jurisdiction. The authority may differ depending on the region or state you are in.
- Determine the Factors Influencing the RRR: Once you have identified the authority, determine the factors that affect the RRR. These factors include the property’s location, prevailing market rates, property type, amenities, infrastructure, and other relevant aspects. Understanding these factors will help you calculate the RRR more accurately.
- Evaluate the RRR: The government authority responsible for setting the RRR usually publishes a table or list of rates for different regional areas or zones. This table is known as the RRR table.
- Locate the Property: To calculate the RRR for a particular property, locate it in the relevant zone or area in the RRR table.
- Identify the Property Characteristics: Once you have located the property, identify the relevant property characteristics in the RRR table. These characteristics may include the size or area of the property, the type of construction, the age of the property, and other relevant details.
- Calculate the RRR: After identifying the relevant property characteristics, calculate the RRR by referring to the corresponding rates in the RRR table. Multiply the applicable rate by the property’s size or area to arrive at the RRR for that particular property.
By following these steps, you can calculate the RRR for a property in your region accurately and efficiently.
Understanding Ready Reckoner Rate with an Example
Suppose you want to buy a residential flat in Maharashtra, where the stamp duty is 5%. Based on the Ready Reckoner Rate set by the Maharashtra government, the value of the property comes to Rs 50 lakh. So, the stamp duty calculated at 5% would be Rs 2.5 lakh.
But, if you end up buying the same flat at a higher price of Rs 70 lakh, you will have to pay a stamp duty of Rs 3.5 lakh (calculated based on the actual value of the transaction).
On the other hand, if you had bought the flat at a lower price of Rs 40 lakh, making the stamp duty Rs 2 lakh, you would still have to pay the minimum amount of Rs 2.5 lakh (according to the minimum value of property set by the Maharashtra government or Ready Reckoner Rate).
So, the Ready Reckoner Rate is a way to ensure that property transactions are done at a fair price and that the government gets its due share of stamp duty.
How does ready reckoner affect the real estate transaction?
Although there are regulations and a fixed minimum selling price for any property, there is no maximum price limit. In India, most properties are sold at a higher rate than the Ready Reckoner Rate (RRR). For instance, the reckoner rate in Mumbai might be set at a particular price, but the actual transaction will take place at rates far above the RRR in Mumbai.
The market price is the price that a customer agrees to pay for a particular property, and it is usually much higher than the RRR. As a result, the buyer has to pay more out of their pocket. However, to save taxes and stamp duty money, people often show prices lower than the actual value, keeping it close to the RRR.
In this process, individuals pay only the minimum registration fees and stamp duty, while the remaining transaction amount is in liquid money. This results in a significant loss of revenue for the state and contributes to the increase of black money in the market.
To prevent such revenue loss, the process is reviewed annually or biannually, and adjusted close to the current market value. However, setting a higher RRR than the market price may discourage potential buyers, as they would have to pay more than the agreed-upon stamp duty. Consistent monitoring and review of the process will ensure the market remains healthy and stable.
What impact does a ready reckoner have on demand?
Different states in India have different rates for the fees you have to pay when you buy any property. These fees are either based on the Ready Reckoner Rate or the market rate, whichever is higher. In some states, this could be as high as 8-10% of the entire transaction amount. So, when you’re buying a property, you have to pay the fees based on the Ready Reckoner Rate even if you’ve paid a lower price initially. This means you have to pay more fees than you should and the seller has to pay more tax, which isn’t great for anyone. It’s better when the Ready Reckoner Rate is the same or lower than the market value because everyone benefits and it helps boost the real estate sector.
What is the impact of selling properties lower than ready reckoner rates?
When you buy a property, the government sets a minimum amount of tax that you have to pay, which is called the ready reckoner rate or circle rate. If you buy a property at a price lower than this rate and the difference is 105 or less than the standard rate of the area, you and the seller will have to pay extra money as a penalty. This can be a huge burden on you. According to the Income Tax Act Section 43A, if you sell a property at a price lower than the ready reckoner rate, you and the buyer will have to pay a penalty of 35% of the difference between the market price and the ready reckoner rate.
How and where to find them ready reckoner rates?
When you’re buying a property, it’s important to know its current value. You can check the government websites to find out the value of any area or locality. The government updates this value from time to time to keep it in line with the market value.
What importance do ready reckoner rates have for homebuyers?
When you want to buy a property, it’s important to know the standard real estate rate in that area. This helps you understand how much you might need to pay for the property. The Ready Reckoner Rate (RRR) is a benchmark rate that helps you compare the market rate with the standard rate. If the gap between the RRR and the market rate is less, it’s a good idea to buy the property. This will help you get more profit when you sell the property later, as the market rate will increase when the RRR increases. It will also help you get a better home loan, if there is a small gap between the rates.
What is the problematic area of RRR?
Sometimes, buyers and sellers secretly agree to register a property at a much lower value than the market rate. This is known as a “black money” transaction, because it involves paying in cash and avoiding taxes. Although this may seem like a good deal for both parties, it harms the government’s ability to collect revenue and contributes to a larger issue of illegal financial activity. To prevent this, governments periodically adjust the ready reckoner rate, which is used to calculate taxes and fees on property transactions, based on the current market value.
What change in RRR can give a boost to the market?
Many people believe that lowering the ready reckoner rate could help the struggling real estate industry. This is important because the real estate industry plays a big role in supporting other sectors of the economy. If the rate is lowered, it could encourage more people to buy and sell real estate properties, whether they are residential or commercial.
Factors Driving Ready Reckoner Rates
The ready reckoner rates in the market are driven by–
- Property’s location,
- Property life,
- Property type (commercial, residential, or plot),
- Availability of amenities.
Ready Reckoner Rates Vs Market Rates
The government sets rates for properties called the “ready reckoner rates”. These rates are based on the lowest price a property was sold for in the past. They are used as a starting point for all future sale or purchase transactions of that property.
There are also “market rates”, which are the actual prices that buyers and sellers negotiate for a property. These rates can be higher or lower than the ready reckoner rates, depending on things like location and amenities in the area.
Conclusion
Understanding the Ready Reckoner Rate is crucial for both buyers and sellers in the real estate market. It serves as a benchmark that influences stamp duty, registration fees, and taxes, ensuring a fair and transparent transaction process. The example illustrated the impact of property value on stamp duty calculations, emphasizing the significance of this rate in determining the financial aspects of a real estate deal.
