Real Estate And Property In Noida: Buying a house and property in Noida and Greater Noida of Uttar Pradesh, which is adjacent to the national capital Delhi and is included in NCR, is now going to be more expensive. The increased circle rate can be implemented in Noida soon. After the implementation of the new circle rate, getting the registration of a house or property in Noida will also become very expensive. Due to this, a boom is being seen in the registration work.

Proposal to increase circle rate for Noida and Greater Noida area

The Uttar Pradesh government has proposed an increase in circle rates for the Noida region. It has suggested an increase of 25 to 30 percent in residential areas and 10 to 15 percent in other areas. Circle rates are the minimum value given to properties to calculate stamp duty and other fees during registration. This proposal of the Stamp and Registration Department is expected to be announced soon. However, public feedback will also be taken in this. 

There has been no change in the circle rate in Noida after 2019

According to an Economic Times report, Assistant Inspector General of Registration Shashi Bhanu Mishra said, "Yes, the Stamp and Registration Department has submitted a proposal to the District Magistrate to revise the rates. The circle rates have remained unchanged since 2019. The price of flats in Noida and Greater Noida has increased significantly in the last few years. In comparison, the stamp duty deposited based on the circle rate is very low. The rates should be revised to reduce this difference to some extent."

According to the proposed calculations, if the circle rate increases by 30 percent, then it can lead to a potential increase of up to 3 percent in the cost of buying a house in the Noida area. Let us know what and how much impact will it have on the cost of owning a house or other property in Noida and Greater Noida if the circle rates increase.

What is the circle rate?

The circle rate represents the minimum valuation rate at which a real estate property can be sold to buyers. This is why it is often cited as a guide price for a property, with developers typically setting their prices in line with the circle rate. The government uses circle rates to determine the amount of various charges, fees, and taxes associated with property transactions. The circle rate for the Noida area was last revised in 2019.

On which factors do the charges levied on the circle rate depend?

The charges levied by the government on circle rates in Noida depend on several factors. According to developers, several charges are directly linked to the circle rates. These include, 

● Stamp Duty: Tax levied on the transfer of property, which is calculated based on the circle rate.

● Registration fee: A fee charged for registering a property transaction, which is often a percentage of the circle rate of the property.

● Transfer charges: Charges for transfer of ownership, which are usually based on the circle rate. This charge is applicable only for resale properties.

However, transfer fees are levied only when resale properties are transferred. The buyer usually pays these fees to the respective registration authorities. In addition, the buyer also pays stamp duty and registration fees. For example, suppose you buy a 500 sq m resale property in Noida and the circle rate of this area in Noida is Rs 47,000 per sq m. The transfer fee is 2 percent of the circle rate then it comes to Rs 47,000X2%= Rs 940 per sq m. So, a total of Rs 940X500= Rs 4,70,000 will have to be paid as transfer fees for this resale property.

What will be the impact of the increase in the circle rate in Noida?

According to experts, if a 30 percent increase is implemented in the circle rate of the Noida area, then you may have to pay about 3 percent more to buy an already-owned house in Noida. If you want to buy a new house in Noida after the proposed increase, the increased cost maybe 2.4 percent. Circle rates directly affect the additional costs borne by the buyer and the property owner.

Manmeet Kaur, Partner, Karanjawala & Co., says, “The buyer of a property has to pay stamp duty and registration charges for the transfer, and these charges are usually calculated based on the transfer value, which is often the circle rate. An increase in the circle rate will lead to a proportionate increase in stamp duty, registration charges, and annual property taxes, which in turn directly impacts the purchasing power of the buyer.”

Manmeet Kaur adds, “An increase in circle rates significantly impacts the purchasing power of home buyers. Circle rates are the minimum rates below which a property cannot be transferred. This provides transparency to buyers as to at what rate a property can be registered. This prevents the undervaluation of property in the market. With the increase in circle rates, buyers will have to face higher stamp duty while purchasing property.”

What impact can this have on home buyers in Noida?

Stamp duty and registration charges are calculated based on the circle rate or allotment rate of an area, whichever is higher. Rahul Arora, real estate partner, at Trilegal, says, "In case of an increase in circle rate, the baseline rate of a property will increase, and this will be further impacted by the resultant increase in stamp duty and registration charges." Let us understand the impact of the circle rate increase on the resale property with an example.

A 2BHK house with a 1,000 sq ft area is a resale house in Noida, where the sq ft price should be Rs 5,000 per sq ft. Hence, the property price comes to Rs 50 lakh (5000X1000). If we assume the circle rate is also Rs 5,000 per sq ft, stamp duty 7%, registration fee 1%, and transfer fee 2%, then the calculation will be as follows:

Stamp duty (7%): Rs 50 lakh X 7% = Rs 3.5 lakh

Registration Fee (1%): Rs 50 Lakh X 1% = Rs 50,000

Transfer fee (2%) (applicable only for resale properties) = Rs 50 lakh X 2% = Rs 1 lakh

The total cost of the transfer will be Rs 5 lakh

Now, if the circle rates increase by 30%, the property price for stamp duty and others will become Rs 65 lakh (Rs 50 lakh+50 lakhX30%)

Now the new calculation will be like this:

Stamp Duty (7%): Rs 65 lakh X7%= Rs 4.55 lakh
Registration Fee (1%): Rs 65 lakh X1%= Rs 65,000
Transfer Fee (2%) (applicable only for resale properties) = Rs 65 lakh X2%= Rs 1.3 lakh
The total cost of the transfer will be Rs 6.5 lakh.

This means, the transfer cost will increase by Rs 1.5 lakh which is 3% of the old value of the property of Rs 50 lakh.

Will the acquisition cost for home buyers come down?

An increase in circle rates for residential properties will directly result in an increase in the acquisition cost for buyers. The upfront cost of the property will be directly impacted as well as other charges paid (stamp duty and registration charges) will increase proportionately. However, one may also consider that circle rates are generally lower than the premium paid by buyers or the actual transaction value paid for such properties. 

Typically, there is a difference of 30-60% between the circle rate paid for residential properties and the selling price. With the proposed 25 to 30% increase in circle rates, apartment buyers will have to shell out significantly more money for the purchase. Income tax officials may use circle rates to calculate capital gains.

What is the relationship between property, circle rate, income tax, and sales tax? 

Additionally, if a property is purchased at a price lower than the circle rate, the difference between the transaction value and the circle rate is treated as “income from other sources” under Section 56(2)(x) of the Income Tax Act, 1961, and is added to the taxable income of the buyer, thereby increasing their tax liability.

For sellers, Section 50C of the Income Tax Act, of 1961 considers the circle rate as the “sale price” for calculating capital gains tax, which means sellers may have to pay more capital gains tax if the sale price is lower than the circle rate, as tax authorities use the circle rate instead of the transaction value to calculate the profit.

What will happen if the increase in circle rate is accepted?

Affordability concerns: Higher costs due to increased stamp duty and registration charges may disthe the courage of potential buyers, making properties less affordable.

Government revenue: While an increase in circle rates may burden consumers, it will generate additional revenue for the government. If allocated wisely, this revenue can enhance public infrastructure and services.

... so get the property registered before the circle rate increases 

Circle rates in Noida and Greater Noida are likely to increase in the near future. If you have made up your mind to buy a property or are very close to making the decision, it would be wise to act quickly as this could save you a lot of money. For sellers, this projected increase could reduce slightly higher costs may discourage potential buyers, and impact property price trends in the future. It is important to keep this in mind when negotiating the selling price of your property.