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Black Money, whether generated by tax evasion or corruption, is largely invested in property, especially in metro and 10-15 other important cities.   This note suggests a practical/simple way to prevent/minimize use of black money in property transactions.   

For every city, Circle Rates (for land/flats) are prescribed by State Governments for the purpose of property transfer instruments.  Circle Rates are the minimum rates of land/built-up flats for the purpose of levying stamp duty on registration of property instruments.    Though notified under Stamp Act, Circle Rates virtually legalize use of black money to the extent these rates are below the market rates of the properties transferred.   

No Circle Rates are prescribed under Income Tax Act for detecting under-valuation of property in transfer instruments.   Therefore, Circle Rates notified under Stamp Act can be validly used by the parties to counter the charge of under-valuation of property, if leveled by Income Tax Department.   

In Delhi, Circle Rates were notified by Delhi Government first in 2007.   These were based on flimsy and irrelevant considerations.   For example, the land rate notified by Land & Development Office (L&DO) of Ministry of Urban Development in respect of land under its control was made the basis of Delhi Circle Rates for land.  It is relevant that L&DO allots land only to Government organizations and it does not sell land to private individuals.  L&DO has also informed under RTI Act that its land rate is not relevant for the purpose of transfer of land for private purposes.   The Delhi Circle Rates were simply doubled in 2011 without any basis and without any reference to market rates.   

Delhi Circle Rates for land are about 5% to 21% of market rates.   These details are based on the information furnished by DDA and Delhi Government under RTI Act.  Information given only relates to those colonies in which plots were auctioned by DDA from 2006 to 2011.    

As regards Delhi Circle Rates for (i) flats and (ii) cost of construction, following aspects may be noted:-   

(i)           Circle Rates for flats are based on plinth area, without any reference to their location.   Land prices in various Delhi colonies vary hugely.  Flats in posh Category A colonies would be exorbitantly costlier than flats in Category H colonies.   These rates are, therefore, grossly illogical and flawed.   

(ii)          As per 2011 Circle Rates, flats in Delhi should be valued at Rs. 1605 per sq. ft. to Rs. 2427 sq. ft.     As per these rates, a 500 sq. ft. flat should be valued at Rs. 10.54 lakhs and a 1000 sq. ft. flat should be available for Rs. 24.27 lakhs.  This is unbelievable when compared with market property prices as available in newspapers for Delhi properties and even NCR properties.    

(iii)        The Circle Rates for cost of construction range from Rs. 221 per sq. ft. to Rs. 1396 per sq. ft.  These rates vary according to the category of the location of construction.   It is relevant to note that the construction cost, excluding land cost, remains the same, regardless of category of colony.  It varies according to the type of construction.  Therefore, Circle Rates for cost of construction are also baseless and flawed.  

(iv)         2011 Circle Rates for cost of construction are the same as for 2007.  It is impossible to believe that construction cost did not increase for 3 years.    

Information in regard to Circle Rates for other cities is not available with us.  It is presumed that Circle Rates in every city are much below the market rates of land/flats.   This presumption is, however, subject to verification and moderation.  


(A)       Step I – Fixation of Market Rates of Land/Flats by Housing Body of the city

Every city has a government housing body.  Delhi’s housing body is Delhi Development Authority.  HUDA is housing body of Gurgaon, Faridabad, etc.  The housing body sells land and flats to general public.  It also maintains reserve prices of land/flats in that city.  Therefore, housing body of the city is best equipped to determine the market rates of land/flats in various parts of that city. 

In view of the above, Income Tax Department may entrust Housing Bodies of metro cities and other important cities with the responsibility of determining market rates of land and flats for various areas of their cities, based on their in-house information and inputs from market experts. 

(B)       Step II – Fixation of Circle Rates for the purpose of Income Tax Act 

Based on market rates as determined by the Housing Bodies, Circle Rates for various cities may be fixed by Income Tax Department for the purposes of Income Tax Act. Circle Rates may be say 67% to 75% of the market rates.   This moderation in the market rates will take care of the day-to-day fluctuations in the market rates. 

(C)       Updation of Market Rates and Circle Rates

The Market Rates and Circle Rates may be updated and notified on quarterly or half-yearly or yearly basis, as found feasible.   

(D)        Availability of Market Rates/Circle Rates on website of Income Tax Department.

Availability of market rates/circle rates on website of Income Tax Department will disseminate the information to the general public.  This will also minimize/prevent arbitrariness and corruption in tax proceedings.  

(E)       Fixation of Circle Rates for the purpose of Stamp Act 

Ideally, the States should adopt the Circle Rates, as notified by Income Tax Department, for the purposes of Stamp Act.   If the Circle Rates for Stamp Act are much lower than the Circle Rates under Income Tax Act, the parties to the property transfer instruments would run the risk of action by Income Tax authorities on the charge of undervaluation of property.  

(F)       Lowering of Stamp Duty consequent upon increase in Circle Rates 

In order to insulate the general public from higher stamp duty charges due to escalation in Circle Rates, Stamp Duty rates may be reduced in proportion to the increase in Circle Rates.  Or, in the alternative, Stamp Duty may cease to be ad valorem and it may be fixed per sq. meter of land or covered area of the flat.    

Published by

Amar Makhijani
(President )
Category Income Tax   Report

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