INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

POWER OF ATTORNEY PROPERTY DEALS SET TO BE ILLEGAL

THIS may come as a warning bell for all those who have bought property on power of attorney (PoA). The urban development ministry is planning to declare all such property transactions illegal in future, as a PoA deal has often been used to avoid registration.

Property registration is a means of revenue for state governments, and the Centre's move is directed at checking this tax evasion. PoA property owners would need to convert their flat to freehold and pay registration fees.

The government is likely to declare land transactions through PoA illegal to check revenue leakage. According to estimates by real estate consultants, more than 55% of property deals in the Capital are executed on the basis of power of attorney. Similarly, for Mumbai, its pegged to be around 40% and 35% for Kolkata. Though the practice has not caught up heavily down south as yet, with the recent influx of professionals from various parts of the country, it's feared to pick up in the coming times.

Once the new regime comes into effect, existing users will be given 10-15 months for converting their property from leasehold to freehold by paying necessary taxes and stamp duties. At present, this comes to around 8% in Delhi and 12.5% for Mumbai.

Meanwhile, the ministry will set up a vigilance department to crack down on property dealers indulging in land transactions through power of attorney while booking unwarranted profits. Sources in urban development ministry said framing of new norms would take some time. Hence, the need for a vigilance department to immediately plug the revenue loss.

Delhi will be the first state to implement the new norms. The model, framed by the Centre, would be followed by other states subsequently. The Centre's vigilance department will also help other states in tracking such transactions.

“The procedure and arrangements of land transactions would also be reviewed by the ministry's vigilance team to check any discrepancy in allotment of land and plots. Any connivance noticed between urban local bodies and private developers or property dealers would be immediately highlighted and the deal would be deemed illegal,” a senior government official said. The vigilance team would be authorised to take suo motu action.

In order to bring transparency in land transactions, the ministry has also urged state governments to hold computerised draws for the allotment of plots and flats in presence of independent judges.

The proposal seems not to have gone down well with property developers and dealers as they evade all taxes and registration fee in sale and purchase of properties.