Ready Reckoner Rate - What Does It Mean And How To Calculate It?
By Investoxpert | 30 Oct 2023 | Real Estate
The state government regulates and assesses the Ready Reckoner Rate, also known as the Circle Rate, as a standard valuation for real estate properties, including land, commercial property, and residential property.
State governments release updated Ready Reckoner Rates each year that are based on various regions of the states. Nonetheless, most states, cities, or communities have different rates.
At varied places have varied RRRs that are determined by different circumstances. No real estate transaction is permitted to occur below this predetermined threshold, which is established for a particular location.
What Is Ready Reckoner?
The Ready Reckoner Rate can be defined as the lowest amount that the government levies for stamp duty and registration fees associated with every real estate transaction.
The ready reckoner rate or the transaction's actual value, whichever is larger, is used to compute the stamp duty.
How To Calculate Ready Reckoner Rate?
Let's determine the ready reckoner rate using the following example:
As previously said, the government sets the ready reckoner rates, which serve as the minimal figures for real estate transactions in a location. Let's use an example to better understand this: Let's say you want to purchase a home in a Maharashtra city, and the area has a 5% stamp duty.
The property is valued at Rs 50 lac, according to the Maharashtra government's RRR. Stamp duty is estimated at Rs 2.5 lac at a rate of five percent.
It should be noted that if you had purchased the property for Rs 40 lakh, making the stamp duty 2 lac, you would have had to pay the minimum amount of Rs 2.5 lac (according to the minimum value of property set by the Maharashtra government or ready reckoner rate). However, if the actual buying price of the flat is Rs 70 lakh, you will have to pay a stamp duty of 3.5 lac (in accordance with the actual value of transaction).
What Impact Does Ready Reckoner Have on a Real Estate Deal?
There is no upper price limit for selling, even though there are regulations and a set minimum selling price for all properties. The majority of properties in India are sold for more than the RRR. For instance, the real transaction will occur at rates far higher than the ready reckoner rate in Mumbai, even though the ready reckoner rate in Mumbai may be set at a specific price.
The amount Indian Homebuyer consents to pay for a certain property is known as the market price, and it is typically significantly more than RRR. Additionally, as market rates rise, the buyer must spend more out of pocket.
The issue at hand is that, in an attempt to save money on taxes and stamp duty, people are showing prices that are near to the RRR but below the true worth.
People using this technique just have to pay the minimal stamp duty and registration costs; the remaining amount is paid in liquid currency. It raises the amount of black money in the market and causes the state to lose a significant amount of income.
To prevent any revenue loss, it is updated annually or every six months to keep it near to market value. However, as they would have to pay more stamp duty than the agreed upon price, buyers would also be deterred from purchasing a property if the RRR was greater than the market price. A steady inspection and adjustment ensures that the market is always robust and relaxed.
How Does Demand Respond To Ready Reckoner?
State governments use the market rate or the Ready Reckoner Rate, whichever is higher, to determine how much stamp duty or registration fees to collect. These fees are essentially transaction values that the buyer must pay when purchasing any kind of real estate. Each state has a different rate.
For instance, a high value of 8–10% of the total transaction amount is found in various Indian states. It is nearly hard to locate a region where the market rate is less than the RRR. The buyer must complete all formalities (such as stamp duty and registration fees) in accordance with the predetermined RRR in this situation, when the originally paid price was less than the ready reckoner rate.
Because of this, the buyer ends up paying more stamp duty than the purchase price, which is an undesirable situation. In addition, the seller would have to pay extra capital gains tax.
As a result, it is always favorable when the Ready Reckoner Rate is close to or less than the market value. Additionally, it helps the market rekindle demand in the real estate sector and benefits both the buyer and seller.
How Does Selling Properties At A Lower Price Than Ready Reckoner Rates Affect Things?
According to government regulations, the purchaser of a property must pay a minimum amount of stamp duty, also referred to as the ready reckoner rate or circle rate. The buyer and seller incur additional costs as a penalty if any transaction is completed at a price below the RRR and the difference is 105 or less than the area standard rate.
It would put them under a great deal of tax strain. A penalty of 35% of the difference between the market price and the Ready Reckoner Rate (RRR) would be imposed on both the buyer and the seller in the event that any property was sold for less than the RRR, as per Section 43A of the Income Tax Act.
Where And How Can I Locate Ready Reckoner Rates?
You should constantly be aware of the current ready reckoner rate when purchasing real estate. To find out the pricing for any given location or area, visit the official websites. After a while, governments are innovating on it to keep it in line with market value.
For instance, to find out Pune or Mumbai's ready reckoner rates, visit the IGR Maharashtra website.
How Significant Are Ready Reckoner Rates To Homebuyers?
It significantly affects the buyer's decision to purchase any type of real estate in any given location. It gives the buyer an idea of how much more they will be paying for an investment by helping them grasp the average real estate rate in the area.
Furthermore, it is always a good idea to purchase any property where there is a smaller difference between the Ready Reckoner Rate and the Market Rate because the latter is never lower than the former. Additionally, as the market rate will rise when the RRR rises, they will be able to sale the home for a higher profit. A tiny difference in interest rates would be beneficial to them in this aspect as well when choosing suitable home loan financing.
Which Part Of RRR Is Problematic?
An unholy alliance can occasionally arise between the buyer and the agreement when the buyer agrees to pay a significant amount more than the ready reckoner rate. Sometimes the property registration on the RRR is agreed upon by both parties.
By doing this, the seller avoids capital gain tax and the buyer avoids stamp duty, and they complete the purchase with cash. Although it appears to be a win-win scenario for all involved, the government ultimately loses out on significant money.
It also increases the amount of black money transactions. This is an undesirable state of affairs, particularly given that the pandemic has severely damaged the economy. Governments continuously adjust the ready reckoner rate (RRR) depending on the continuously fluctuating market value in order to prevent such occurrences.
What Adjustment To RRR Could Stimulate The Market?
Reducing the ready reckoner rate is thought to aid in the real estate sector's recovery from its damaged status. The real estate sector is increasingly significant because it supports numerous other sectors of the economy. Reducing the rate will encourage more transactions on real estate, residential properties for sale, or commercial plots between buyers and sellers.
What Are The Factors Driving Ready Reckoner Rates?
The following elements influence the market's ready reckoner rates:
- Location of the property
- Life of the Property: Commercial, Residential, or Plot Type of Property
- The accessibility of facilities
Ready Reckoner Rates Vs Market Rates
The ready reckoner rates are determined by the government. Based on the lowest transaction amount ever recorded for a property, these charges are set. For all sales and purchases, the ready reckoner rates serve as the foundational worth of the property.
On the other hand, the market rates represent the true cost of the property's acquisition and selling. These are the prices that buyers and sellers agree upon after multiple rounds of haggling. The market rates may differ from the ready reckoner rates in a number of ways. The two main variables that affect market pricing are location and local amenities.
Conclusion
In summary, ready reckoner rates function as the benchmark rates for real estate transactions, below which none can occur. In an area, the ready reckoner usage acts as the base rate for real estate transactions.
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