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In a bid to encourage property registration and freehold ownership, the government is planning to direct states to disallow sale of property or land on the basis of power of attorney (PoA). Exceptions will only be allowed in the case of blood relations and family members. The move aims to discourage property transfers through PoA that leads to a revenue loss for the state’s exchequer.

According to real estate consultants, more than 55% of property deals in the Capital are executed on the basis of PoA. The figure is pegged at 40% for Mumbai and 35% for Kolkata. Though PoA is not as popular down south, it is expected to pick up with the recent influx of professionals from various parts of the country.

PoA is a popular instrument for property transactions where the ownership changes without payment of stamp duty to the state government. In contrast, when one buys a freehold property, he is required to pay a stamp duty based on the notified rate to the state government. Disallowing PoA transactions apart from blood relations would help states in enhancing revenue collection. However, in cases of inheritance, the inheritor will have to pay wealth tax after the formal property transaction.

The move, mooted by the urban development ministry, will have to be implemented at the state level since land is a state subject. However, the Centre is using this as a rider for states to avail funds under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Only states willing to bring in the new norms would qualify for grants and funding under the JNNURM programme for urban infrastructure.

“The states have been asked to have a uniform stamp duty at 5% and ramp up their revenue collection through plugging the leakage. One of the plans is to persuade people for transferring properties through registration. It will not only help in enhanced revenue generation but also put an end to illegal and benami property transactions,” an urban development ministry official said.

Delhi is likely to be the first state to implement it. According to Delhi government officials, the rule would soon be applied in the state for property transactions. “The Municipal Corporation of Delhi would maintain computerised records of properties and track their ownership from time to time. PoA deals have often been used to side-step registration that results in huge revenue leakage,” a senior official in the Delhi government said.

According to industry body National Real Estate Development Corporation (Naredco), the move will certainly bring more transparency in property transactions. “PoA should not be the basis of property transactions. It is used to evade stamp duty, leading to revenue loss for states. Coupled with the declining stamp duty rates, the move would provide an incentive for registration to buyers,” Naredco deputy director Sumit Jha said.

From Economictimes