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very urgent............exemption u/s 54

vijay singla (learner) (340 Points)

24 April 2010

dear friends can a residential house be purchased under power of attorney to claim exemption u/s 54or house should be transferred in the name of the assessee if he purchase house within the time stipulated u/s 54? pls be sure before reply

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7 Replies

Nicky (Chartered Accountant) (245 Points)
Replied 24 April 2010

Your question itself is a doubt for me...

Say Mr. A has sold a residential flat and wants to purchase a new house to claim section 54..your question is can Mr. A buy the house through POA, I am assuming the question to be this and answering (please correct me if wrong)

See POA Holder is a mere agent and no more he would be acting on behalf of the Principal in the given case Mr. A and hence Mr.A's name would be there on Index II or 7/12 extract as the case may be, so he can avail the benefit

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Dhruv (Chartered Accountant) (308 Points)
Replied 24 April 2010

Transfer through power of attorney is a valid transfer as per Income Tax Act. Transfer through power of attorney is governed by the transfer of property act which stipulates that if a power of attorney is signed and adequate monetary compensation is paid and possession is taken, it is said to constitute a transfer and exemption can be taken under the purview of Section 54.

Please note that just the signing of power of attorney does not constitute transfer, it also has to be accompanied with monetary compensation ( payment of from buyer to seller of the value so agreeed) and possession.

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vijay singla (learner) (340 Points)
Replied 24 April 2010

dear friends detail query in respect of above is given here: one of my friends sold residential house in the year 2008- 09. and deposited the proceeds in the 'capital gain deposit account scheme' before filing the income tax return of 2008-09 before due date. now he wanted to buy new constructed house i.e well in time before 2 years as per section 54. my query is: he is going to buy new house under general power of attorney at chandigarh and same will not be transferred in his name immediately. it may take one year or more to transfer the property in his name. is purchasing the house under GPA wil fulfil the condition. will bank wil allow him to withdraw the money against this property and can he claim exemption u/s 54 or transfer of proptery in his name is precondition for claiming exmption? pls reply if ur dead sure. thanks in advance

Nicky (Chartered Accountant) (245 Points)
Replied 24 April 2010

I am not dead sure but cant resist the temptation to reply:

a) Buying the house on GPA, means he would be given the right to use the premises and enter the premises correct me if wrong and only sale deed would be done latter... Here, you fulfill the conditions laid down in Chathurbhuj Dwarkadas Kapdiya and hence the possession has been transferred so it shouldn’t be an issue...

b) But GPA would not entitle him to non disputable title hence Chathurbhuj Dwarkadas Kapdiya ratio's wont help and if in turn it is converted to irrevocable power of attorney specific to the flat then 54 entitlement is available (Remember Stamp Duty is completely payable in these cases)

c) on GPA bank wont release funds but for specific it may subject to u giving a specific undertaking about the event...

Me not dead sure yet but this is best I can think of...

Dhruv (Chartered Accountant) (308 Points)
Replied 24 April 2010

See the thing is , you're talking about two separate things :

1) Does transfer through power of attorney imply transfer as per Income Tax Asset - Yes, transfer through POA subject to some conditions such as possession and adequate monetary payment implies you have acquired the plot and hence are eligible for Sec 54 exemptio.

2) Will the bank release documents based on POA - Am not sure about this, but most probably no, banks rarely recognize POA as valid documents evidencing title to a property. POAs are mostly used in apartments constructed by builders such as Amrapali,DLF etc, where during the initial some years apartments can only be transfered through POA but eventually registry needs to be done (basically the sale deed) method. Whether the bank will release funds or not, not sure.

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Pawan Mittal (55 Points)
Replied 21 May 2012

I think POA is not enough to claim deduction to claim deduction u/s 54 irresprctive of consideration has paid or not. You must have the Agreement of Sale to complete the purchase.

Pawan Mittal (55 Points)
Replied 21 May 2012

POA is not enough to claim deduction to claim deduction u/s 54 irresprctive of consideration paid or not. You must have the Agreement of Sale to complete the purchase for the purpose of u/s54.