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Wednesday, January 13, 2016

Power of Attorney Property - Buy or not Buy?

 

Power of Attorney (POA) Buy or not buy?

It is a document under which one person known as "Principal" or "Donor" grants an authority to another person, known as "Agent", "Attorney" or "Donee," to do or undertake the acts, deeds and things specified in the document, on behalf of the Principal or Donor. It is called as "Mukhtaar Nama" in Urdu. With respect to property transactions under a Power of Attorney, the seller (donor) of the property gives the buyer (donee) the possession of the property and the power to deal with the property as he/she (the buyer) may deem fit. In some areas like the National Capital Region of Delhi, many property transactions were done on the basis of power of attorney, in cases where otherwise property cannot be sold due to certain restrictions.

Rules & Guidelines Associated with POA

The rules and guidelines related to POA are described under various provisions of the Indian Evidence Act, 1872; Indian Contract Act, 1872; Power of Attorney Act, 1882; Indian Stamp Act, 1899; and Registration Act, 1908. These are summarized as follows:

  • The Power of Attorney can be specific or very general. You can authorize just one task or, you can give your agent the power to do everything you can do for yourself.
  • The duration of Power of Attorney may continue to be in force until the expiry date mentioned in the document or it is revoked or by death of either party. A registered power of attorney can be cancelled by a cancellation deed. Applicable stamp duty required to be paid while doing so.
  • A Power of Attorney need not be registered except in case of sale of leasehold immovable property. However, some states have recently enacted amendments to rules stipulating registration of POA for registration of transactions involving sale or lease of immovable property. As per Registration Act, if a Power of Attorney assigns power to present documents for registration then it must be executed before and authenticated by the Registrar or the Sub-Registrar. If the Registration Act is not in force at the place where the executant resides, then an authentication by a Magistrate is necessary.
  • If a Power of Attorney is registered outside India, a notary public, court judge, magistrate of that country, or Indian consulate or a representative of central government must authenticate it.
  • It is the duty of the agent, the Power of Attorney holder, to act honestly and faithfully on behalf of his principal. He is legally bound to perform and work according to the wishes of the principal.
  • Registration of Power of Attorney provides authentication to the Deed of Power of Attorney. In India, where the Registration Act, 1908 is in force, the Power of Attorney must be authenticated by a Sub Registrar only, when a person signs the document and his attorney presents/ admits execution. Power of Attorney has to be attested by two or more adult independent witnesses who are of sound mind. If a Power of Attorney has been registered outside India, it is required to be stamped by the Collector within 3 months from date of its receipt in India.
  • It is also an important document required by the Banks/HFIs for processing home loans, especially in case of NRIs. Since they are not based in India, the HFIs need a representative in India 'in lieu of the NRI' to deal with.
  • The courts have held that if a sale deed is signed by the power of attorney holder on behalf of the owner and presented for registration, the power of attorney need not be authenticated by way of registration. However, as stated earlier some states have amended the rules stipulating registration of POA for registration of sale or lease transaction for immovable property. If the sale deed has been signed by the owner and presented for registration by the power of attorney holder, then the power of attorney should be registered.

Advantages/Disadvantages

What constitutes ownership is a legal subject and has been the subject matter of much litigation in courts. With the introduction of Section (iiib) of the Income Tax Act, the power of attorney holder is the deemed owner of the property and eligible for the tax benefits. The power of attorney may give the power to the buyer to further provide such power of attorneys to other people (for other buyers in the future). Most banks / HFCs do not encourage such transactions, since the ownership itself is not transparent in such a transaction. Such transactions are normally entered into to save on charges payable to the development authorities as well as stamp duty and registration charges. Home loans to buy such properties may be available from a restricted list of home loan lenders, who may also charge higher interest rates. Buying property becomes more complicated if it is being done through a chain of power of attorneys.

In Delhi, for instance, most Delhi Development Authority flats were earlier sold with a condition that 50 per cent of the difference between the first purchase price and the re-sale price had to be given back to the government. To get around that, power of attorney sales became common in the city. But power of attorney sales need to be taken up with extreme care. An irrevocable power of attorney must be accompanied by a will, which names the buyer as the person who will inherit the property. That seems simple enough. But it gets complicated if the property is sold several times. Each person selling the property must also hand over an irrevocable power of attorney, along with the will of the original and subsequent owners as well as his own. So if you end up purchasing a property that has trail of several Power of Attorneys, you will also receive a large number of wills.

What needs to be done?

It is advisable to stay away from a property involving a long chain of power of attorneys. The heirs of any of the previous owners can challenge the wills, creating problems for the present owner. On the other hand, if it's the first or the second power of attorney, then you can track the trail to ensure that there will be no complications in future. However, it's best to consult a lawyer in such a case. Also, you must insist on furnishing the original title deed and other documents evidencing allotment of property in the favour of original seller and payments for the same.

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