Ready reckon rate/ RR Rate is also known as circular rate. The real estate fraternity and people into property transactions are acquainted with this term. RR Rate is the minimum rate of the property that is fixed by the respective state government every year. Ready reckon rate is a driving force for stimulating the demand and supply of properties both commercial and residential in a real estate market.
RR Rate varies from state to state. Moreover, it is different for different cities within the same state. Also, it can vary within different municipalities. Market rate may or may not be equal to the ready reckon rate. As per the definition of economics, the market rate is the rate which a consumer is both capable and willing to pay for a given commodity. In most of the markets functioning today market rate is usually higher than the Ready Reckon rate.
There are many factors which influence the fixing of RR Rates-
- Market attractiveness
- The purchasing power of the consumers
- Future prospects- upcoming projects- highway, metro, SEZ, etc., schemes, subsidies, etc.
- Rental value
- Demand and supply in the given area
- Government policies
- Natural calamities/ disasters
- International dynamics
- Type of property- commercial/ residential
- Capital value (cost of material, equipment, service & maintenance, etc.)
RR rates are significant because it is to be noted that stamp duty and registration charges are levied upon the higher of the RR rate or Market value. For example, if the RR Rate is INR 6 Lac for a given property and market rate is INR 5.5 Lac, stamp duty and registration charges will be levied upon INR 6 Lac. Likewise, if the RR Rate is INR 6 Lac for a given property and market rate is INR 6.5 Lac, stamp duty and registration charges will be levied upon INR 6.5 Lac.
Thus, in case a deal takes place at a rate lesser than the circular rate consumer is liable to pay a higher stamp duty and registration charges. Similarly, the owner or seller is also compelled to pay a higher capital gain tax. This is the reason; real estate fraternity is calling for a revision of RR Rates towards the lower side. Also, by doing so because of the fall in demand the gap between circular rates and market rates will gradually decrease in the case when market rates are higher than the circular rates. Real estate will slowly gain its lost momentum and will be better able to sell off its inventory. The National Real Estate Development Council (NAREDCO) has also urged for a reduction in RR Rates to stimulate the demand for unsold inventory.
Stamp duty and registration charges also levy a considerable financial liability upon the prospective buyer. Rates for stamp duty and registration charges are variable for each state. Table below from paisabazaar gives us a tentative estimate of stamp duty for different states. Registration charges are usually about 1%, which is to be paid after having paid the stamp duty.
Circle rate revision should be done as per the market scenario so that it is a win-win situation for all the stakeholders involved both directly and indirectly.