Summary: The gap between government-defined circle rates and actual market values in real estate transactions often leads to tax evasion, black money circulation, and unreported cash dealings. Circle rates, used for stamp duty and taxation, are typically lower than market values, encouraging buyers and sellers to underreport transaction prices. To curb this, the government should establish a mechanism for annual updates to circle rates based on market trends, making this information publicly accessible via District Property Registration and Municipal Portals. Similar to gold price updates, a dynamic system for property valuation can enhance transparency. Aligning circle rates with market values would help increase government revenue from stamp duties, reduce black money involvement, and improve loan eligibility based on actual property values. Additionally, it would ensure accurate financial reporting and curb illicit fund circulation in real estate development.
In real estate transactions, the gap between circle rate and market value can lead to cash transactions, black money involvement and increasing the risk of tax evasion. To address this, the government should analyse market values annually and update the circle rate compare to Market value accordingly on the District Property Registration or Municipal Portal. This will help reduce the chances of tax evasion and black money circulation while ensuring a more transparent and regulated property market.
- Circle Rate: A government-defined minimum price for property transactions, used to calculate stamp duty and taxes. It varies based on locality and property type and is periodically updated by local authorities. When purchasing property, stamp duty is calculated based on the higher of the circle rate or actual transaction price. However, many transactions are registered at the circle rate to save on stamp duty, leading to a gap between the circle rate and market value, often enabling cash transactions between the buyer and seller, which further increase the risk of tax evasion.
- Market Value: The actual price at which a property is bought or sold in the open market, influenced by factors such as location, demand and supply, and market trends. Market value is typically higher than the circle rate, especially in high-demand areas.
Key Differences:
- Circle Rate is government-defined, while Market Value is determined by the buyer and seller.
- Circle Rate is often lower in rapidly appreciating areas.
Challenges with the Gap between Circle Rate and Market Value:
- In real estate transactions, the gap between circle rate and market value can lead to cash transactions, black money involvement and increasing the risk of tax evasion.
Implementation and Benefits:
Just as the government has organized the real estate sector and implemented the RERA Act in India, which is a major achievement for all of us, the same approach could be applied to updating the circle rate as Market Value, If the government creates a mechanism for regular updates of the circle rate, it could reduce tax evasion and black money involvement in the real estate sector. Just like the daily update of gold prices, the market value of properties should be publicly available on the District Property Registration Portal or Municipal portals, keeping the public informed.
Benefits of Circle Rate Updates:
1. Increased stamp duty revenue for the government.
2. Reduced tax evasion.
3. Lower black money involvement.
4. Due to cash involvement, builders can use accumulated black money for further construction of projects, which leads to a significant loss to the country’s economy. This issue would decrease if proper regulations are in place.
5. Property values can be shown to banks for higher loan eligibility based on market value.
6. Properties can be accurately reflected on balance sheets.
Jai Hind! Jai Bharat!
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