Circle Rate - The Effect it has on Your Income Tax Calculation

House choice and buying process taking into consideration the concept of Circle Rate and its effect on Income Tax. 

If you are about to invest in or buy or sell a new real estate asset, then it is very important for you to understand the concept of Circle Rate and its influence on your income tax calculations. Once you are aware about Circle Rate, the very logic behind it, and its relevance in tax calculations, then you will be empowered with the right knowledge and skills to venture into the exciting world of real estate investments and business.

Maintaining relevant and complete documents at the time of booking is important, as this can impact your income tax calculations. In some states like Maharashtra, the Stamp Duty Payment and Registration of the new property is done at the time of booking itself, and this removes all doubts and ambiguities since the Stamp Duty is paid on the existing Circle Rate only.


  • A Circle Rate is a speculative value of a commercial or residential property, and it’s the rate at which that property is sold or transferred. The Revenue Department of the State determines the Circle Rate of any real estate asset, and it depends on various factors, and varies from city to city, and even locality to locality.
  • The Stamp Duty on the real estate property being sold or transferred is paid based on the Circle Rate. And hence, it is very important to know the ongoing Circle Rate of the property you are about to buy or sell.
  • In some states like Karnataka, Circle Rate is known as ‘Ready Reckoner’ or ‘Guidance Value’, and in some places like Delhi, the Circle Rate is categorized based on 8 categories: A to H. While Category A is the most expensive, Category H is the cheapest.
  • Circle Rate can be calculated based on several factors as determined by the Revenue Department. The current Market Value of the property, the location of the property, facilities available, tax slabs are some of the factors taken into consideration.


Under Section 80EEA, both the co-owners of a self-owned home can get Rs 1.5 lakh tax benefits, each. This makes total tax saving of Rs. 3 lakh. Also, this deduction is over and above the deduction of Rs. 2 lakhs available under Section 24 of the Income Tax Act.


  • Market Value is the perceived value of a real estate property at which the buyer and the seller agree to deal at. Whereas, Circle Rate is the speculative value of a real estate property as determined by the Government.
  • Now, two scenarios commonly arise in a real estate transaction:
    • Market Value is same or higher than the Circle Rate: In this case, there is no issue with the tax calculation and the stamp duty is paid based on the Circle Rate.
    • Market Value is less than the Circle Rate: In this case, the Government will consider the difference between the two values as the income generated for the owner. Hence, an appropriate income tax will be calculated and levied.
      Example: If the Market Value of an apartment is Rs. 50 lakhs, but the Circle Rate is Rs. 40 lakhs. In this case, the difference of Rs. 10 lakhs will be considered as an income for the house owner. And thus, income tax will be charged on the same.
  • However, note that, if the difference in the Market Value and the Circle Rate is less than 10% or less than Rs. 50,000, then the owner need not pay income tax on the difference.


Another scenario can arise wherein the Circle Rate has changed from the time of booking to the time of paying Stamp Duty.

Example: Say you bought a new house in May 2021, for Rs. 40 lakhs, and the Circle Rate was Rs. 35 lakhs at the time of booking. No issues with this transaction, since the Circle Rate is lower and the Market Value is higher.

The date of agreement has significant impact on the Circle Rate applicable to your purchase. After 6 months, in November 2021, when you are about to pay the Stamp Duty and register the property, say the Circle Rate is revised to Rs. 45 lakhs. In this case, you will be required to pay Stamp Duty on the new Circle Rate, which is Rs. 45 lakhs. But the difference; Market Value is Rs. 40 lakhs and Circle Rate is Rs. 45 lakhs. In this case, the difference of Rs. 5 lakhs won’t be considered as an income for the owner, if they can provide a proof of the booking made 6 months back at the then prevailing Circle Rate.

It is very important to understand both the Circle Rate and the Market Value before buying any real estate property. Knowing the prevailing Market Rates help you gauge your property-buying potential and give you a clearer understanding of the extent of appreciation that you can expect in that particular city or locality.