Moneycontrol PRO

Will creation of subcategories enable properties in Delhi to be valued at realistic prices?

Experts say that while this may reduce corporation tax collections on sale of properties due to the lower rate at which properties would be taxed, the number of transactions may increase bringing in more revenue to the exchequer.

The Delhi government on February 5 decided to slash circle rates for residential, commercial and industrial properties in Delhi by 20 percent flat until September 30, 2021.

The Delhi government on February 5 decided to slash circle rates for residential, commercial and industrial properties in Delhi by 20 percent flat until September 30, 2021.

To ensure that properties in Delhi are valued at realistic prices, the Delhi government is considering creating 32 subcategories of properties under the existing eight that are classified A to H.

The national capital seems to have a real problem when it comes to valuation of real estate. Moneycontrol had suggested last month that a blanket cut of 20 percent in property circle rates in Delhi may not be the best way to reset the market because the city is divided into eight categories. In category A localities like Maharani Bagh, New Friends Colony, Panchsheel Park and Vasant Vihar the market rates are still below circle rates, particularly for large plots, despite the 20 percent cut.

And in category B micro markets like Defence Colony, Anand Lok, Neeti Bagh and Greater Kailash, to name a few, the actual market rates are much above circle rates, leaving room for cash transactions.

What are circle rates?

Circle rates refer to the minimum rate notified by the government through the registrar’s or subregistrar’s office for registration of property transactions. Stamp duty is to be paid on the declared transaction value or the value calculated as per the circle rate chart applicable for the sector, whichever is higher.


Circle rates tend to vary across various areas of Delhi depending on the market value of the area and the facilities available there. The Delhi government has divided properties in the entire city into eight categories from category A—the most expensive—to H, the least.

The government generally assigns a higher circle rate to commercial properties and lower rates for residential properties. Even in the residential property segment, circle rates depend on the type. The registration value of an apartment in Delhi is different from that of plots and independent houses even within the same area.

According to reports, the Delhi government’s evaluation committee has recommended the creation of four to five subcategories for each of the current categories. At present, the classification is very broad and there is a massive difference in the circle rates between categories. In the A category, the rate is Rs 7,74,000 per square metre, while that for B category is Rs 2,45,520 per square metre. The formation of subcategories is meant to ensure that rates are more in line with prevailing market values.

How will subcategories help?

The circle rate for all existing categories was last revised in 2014, and a re-evaluation exercise was going on to get a more realistic picture and provide a fair value to properties that may have improved in the rankings on account of new infrastructure such as Metro connectivity and other facilities.

“This is the need of the hour as a large number of property owners have not been able to transact for the last several years due to the circle rate challenge where actual market prices are significantly lower than the circle rate and the difference is as high as 40-50 percent. If this goes through, it will also help owners of larger plots and also help increase revenues particularly in category A colonies. It will benefit areas such as Maharani Bagh, Friends Colony, Kalindi Colony, Vasant Vihar and Panchsheel Park, among others,” said Amit Goyal, chief executive officer at India Sotheby’s International Realty.

Sunil Tyagi, senior partner and co-founder of Zeus Law, agrees. “Creating subcategories for the purpose of levying stamp duty and registering a property will help rationalise property prices. Not every colony in Category A has a market rate of Rs 7 lakh per sq m. To cite an example, there exist several variations in New Friends Colony whose market value is not Rs 7 lakh but around Rs 5 lakh. However, on account of the current circle rates, it falls in category A. It is due to this reason that not many transactions have been taking place in this area,” he said.

Creation of subcategories will help rationalise stamp duty as well as property taxes. Currently, the circle rates for category A properties is Rs 7.74 lakh per sq m and the next category (B) is Rs 2.45 lakh per sq m. Category C properties are charged at Rs 1.59 lakh per sq m, D at Rs 1.27 lakh per sq m, E at Rs 70,000 per sq m, F at Rs 56,000 per sq m, G at Rs 46,000 per sq m and Category H at Rs 23,000 per sq m.

Moreover, in many areas the market rate is lower than the circle rate. In such instances, if the going rate for an apartment is Rs 10 crore, the stamp duty is charged at Rs 12 crore. Here the seller is presumed to have sold the property at a higher price for which he is liable to pay long-term capital gains tax that is calculated presuming the property is sold at Rs 12 crore and not Rs 10 crore. For the buyer, too, tax is charged on an additional Rs 2 crore. This is why properties are stuck in colonies such as New Friends Colony, with both the seller and buyer are unwilling to bear the additional tax liability.

Subcategories could help align the market rate to realistic levels. The four subcategories under Category A could be Rs 6 lakh per sq m (A2), Rs 5 lakh per sq m (A3) and Rs 4 lakh per sq m (A4). This will reduce the current circle rate gap between Category A (Rs 7 lakh per sq m) and B (Rs 2.45 lakh per sq m).

“Also, while this may reduce corporation tax collections on the sale of properties due to the lower rate at which properties would be taxed, the number of transactions may increase bringing in more revenue to the exchequer,” Tyagi said.

On February 5, the Delhi government reduced the circle rates for all categories of properties till September 30. Circle rates were reduced by 20 percent for residential, commercial and industrial properties across all categories of localities. The government on September 30 decided to extend this scheme till December 31 in a bid to revive a market that has seen a slump due to the Covid-19 pandemic. A real estate transaction cycle is typically five to six months from start to close, but with the second wave forcing a lockdown, more than three months were lost.

However, according to reports, the lower circle rates led to an increase in stamp duty collections. Property registrations in the city picked up as a phased reopening from lockdown began in June.

"A total of 1,22,499 properties were registered by mid-September this year leading to stamp duty collections of over Rs 1,371 crore. In comparison, stamp duty collection was Rs 1,155 crore in 2020 that was badly hit by Covid and lockdown," a media report said quoting a senior officer.

The stamp duty collection in June 2021 was Rs 313.13 crore, while it was Rs 150.67 crore in 2020. In July 2021 it was Rs 380.86 crore compared to Rs 214.84 crore in July 2020.

Stamp duty earned from property registration was Rs 318.75 crore in August 2021, against Rs 201.62 crore in August 2020.

The thinking behind reducing circle rates in the capital, much like in the case of the Maharashtra government, was to boost real estate sales after the adverse impact of the first wave of Covid-19. The difference was that the Maharashtra government on August 26, 2020, decided to temporarily reduce stamp duty on housing units from 5 percent to 2 percent until December 31, 2020, to boost the stagnant real estate market. The stamp duty from January 1, 2021, until March 31, 2021, was to be 3 percent.

According to data available on the website of the department of registration and stamps, 19,600 properties were registered in the Mumbai Metropolitan Region in December 2020; the number touched 10,442 in January when stamp duty was 3%. In February, 10,198 properties were registered and in the following month the number of transactions rose to 17,091.
Vandana Ramnani
first published: Oct 12, 2021 08:11 pm

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