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Handing over power of attorney? Read this first

By Archit Gupta
November 28, 2017 09:46 IST
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Build trust and confidence and don't pass on your powers in haste.
Once the document is ready, go through it and understand thoroughly the powers that you are going to delegate, cautions Archit Gupta.

Many professionals, businessmen and high-ranking corporate executives have such busy schedules that they need to delegate certain duties to others.

Sometimes, this can include crucial tasks such as carrying out property transactions and executing contracts. That is when the power of attorney (PoA) comes in handy.

While using PoA is definitely convenient, it also carries certain risks and is not something that one should do without due thought and care.


What is a PoA?

PoA is a document that gives a person the legal powers to act on behalf of another.

It can be used to hand over power to someone to act on your behalf when you are not available or are not capable of carrying out your own dealings.

Non-resident Indians (NRIs), who cannot be physically present in India to carry out the sale or purchase transactions of their properties, use it.

The elderly, who are incapable or incapacitated, use it to allow someone to carry out financial transactions on their behalf.

Those who lack expertise in certain manners use it to allow someone else to represent them or to execute contracts on their behalf.

In India, PoA is most commonly used in property dealings, financial transactions, to execute contracts, file tax returns, and sometimes to represent a person before the authorities.

The person who hands over power is referred to as the principal.

The one who receives the authority is referred to as the attorney (and sometimes, the agent). That person may or may not be a lawyer.

The principal makes a PoA in favour of an agent and delegates his authority to him. The PoA is a valid legal document.

Third parties rely on it to transact with the agent instead of the principal. A PoA may be registered with a registrar or it may be notarised.

Trust is the key

A PoA should only be given to a person whom you can trust to act on your behalf, such as a family member or a close friend.

Give it only to someone who is both responsible and loyal to you.

Remember that even after you have given a PoA, you still have the power to act on these matters yourself.

Hence, a PoA is not a complete ceding of your original rights, but only an authority given to someone to act on your behalf.

By inserting a date of expiry, you can make it time bound.

You can also revoke it if you wish to.

If the principal dies during the term of the PoA, the latter stands automatically revoked and the heir mentioned in the will takes over.

General versus special PoA

There are two types of PoA -- general and special.

A general PoA gives wide-ranging powers to the agent. The principal could authorise the agent to buy or sell property, conduct business on his behalf, and so on. No specific purpose is mentioned here.

Instead, the agent is given powers to act on behalf of the principal in a wide range of matters.

When handing over general power of attorney, the principal can decide to exclude some powers specifically, and the agent will not be able to act on those matters.

In case of a special power of attorney, the principal authorises the agent to act on her/his behalf in specific matters only.

In other words, only limited powers are given to the agent.

For instance, special power of attorney may be used for the purpose of brokering specific agreements, to perform specific business-related tasks, close or operate bank accounts, undertake sale or purchase of equities and other investments, file tax returns, or represent the principal before the tax authorities.

Minimise your risks

The importance of choosing your agent with great care and discretion cannot be emphasised enough, especially in matters where doing so can have a big impact on your finances.

In addition, you can also take a few steps to minimise your risks.

Discuss at length with the person you plan to give authority to what s/he can and can't do on your behalf.

Make the agent/attorney understand that whenever there is a matter of critical importance, it should be discussed with you thoroughly before s/he acts on those matters.

Build trust and confidence and do not pass on your powers in haste.

Engage professionals to draft the POA.

Once the document is ready, go through it and understand thoroughly the powers that you are going to delegate.

If you are giving general PoA to someone to handle property matters, you should exclude the right to sell or mortgage the property.

Allowing someone to sell your property via PoA carries great risks.

Such a PoA must be registered and the powers that are being handed over must be clearly spelt out.

NRIs may also have to liaise with the Indian consulate in their country to authorise the PoA.

Usually, when you authorise your chartered accountant to file and submit tax returns, or to represent you before the tax authorities, the risks are not very high. These are professionals who act on your behalf for a fee.

They are unlikely to act in a way that harms your interests as doing so would jeopardise their future earnings from you.

One way to protect your interests is to engage a lawyer to double check the agreements that your agent enters into on your behalf and ensure that your interests are not jeopardised.

Also, include an indemnity clause in the agreements signed by your agent.

Finally, put in place a will so that your heirs' rights are protected.

In case of the principal's untimely death, there should be no uncertainty regarding whom his property and rights devolve to.

Once the legal heirs take control of the property, they should fully understand their responsibility to file tax returns on time and pay all the taxes that are due.

Archit Gupta is founder and CEO, ClearTax

Kindly note that the lead image has been published only for representational purposes. Photograph: Kind courtesy Lucas/Creative Commons

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