Understanding Circle Rates and Their Impact on Property Transactions

Explore the significance of circle rates in property transactions and the implications they have on taxation and market values.


The circle rate of property has always been a subject of concern for both buyers and sellers, leading to confusion about the safest option for conducting a sale or purchase. This article aims to shed light on the concept of circle rates, their connection to market values, and their impact on tax benefits. By understanding these aspects, buyers and sellers can make informed decisions regarding property transactions.

Understanding Circle Rates

Circle rates, also known as Ready Reckoner or Guidance Value or Stamp Duty Value in different states, are predetermined prices used for determining stamp duty payments. They represent the minimum value at which properties such as land, built-up homes, condos, or commercial real estate can be sold or transferred. The stamp duty is calculated based on the circle rate when registering a property, ensuring that the state government collects appropriate revenue from real estate transactions.

Relationship between Circle Rates and Market Value

The market value of a property refers to the price a buyer is willing to pay for it. It is influenced by factors such as demand, supply, location, infrastructure, and facilities available in the area. While the market value may fluctuate based on market conditions and negotiations between buyers and sellers, the circle rate remains relatively stable. In most cases, the market value exceeds the circle rate, creating a gap between the two.

The Impact of Circle Rates on Taxes

For sellers, if a property is sold below the circle rate, the stamp duty is still calculated based on the circle rate. This difference between the circle rate and the selling value is taxable as capital gains for both the buyer and the seller. The Income Tax Act (Section 50C) specifies that if the transfer instrument specifies a value lower than the circle rate, the stamp duty valuation will be considered for determining capital gains.

Similarly, for buyers, if a property is purchased below the circle rate, the accumulated difference between the circle rate and the market rate is considered as taxable income under the category of income from other sources. However, if the deviation between the circle rate and the actual transaction price is within 10%, no additional taxation is imposed on the buyer or seller, as per the Budget 2018 amendment.

Amendments and Their Impact

In 2016, the amendment aimed to discourage transactions below the circle rate by imposing tax liabilities not only on sellers but also on buyers. The full value consideration for determining the tax liability is based on the stamp duty on the date of the agreement, provided the payment is made through official channels before or on the date of agreement.

In 2018, another amendment recognized the variations between the circle rate and the actual transaction price. If the deviation is not more than 10%, the provisions of Section 50C and Section 56(2)(x) do not apply. This means that no additional taxation is imposed on the buyer or seller when the deviation falls within the 10% threshold.


Understanding circle rates and their impact on property transactions is crucial for buyers and sellers alike. These rates, which are typically lower than market values, play a significant role in determining stamp duty and tax liabilities. By staying informed about circle rates, market values, and relevant amendments, individuals can make well-informed decisions while buying or selling property, ensuring compliance with taxation regulations and maximizing their financial benefits.

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