Power of Attorney is a practical choice for NRIs

Queries you asked:
My son is NRI. He has given me power of attorney for doing all transactions in bank, insurance,stock market or any other investment, and filling of income tax return. As per my knowledge it is ok. Can you tell me if I am right?
Maneklal Patel

What are the formalities to open demat and e-trading online for an NRI who is in USA through his power of attorney holder?
Krishnan Hari

Expert Sandeep Shanbhag replies: 
Overview:
Since NRIs by definition cannot be physically present in India for at least six months in any year, it is convenient and practically useful for them to issue a Power of Attorney (PoA) to some other person of their choice, say a family member, to act on their behalf. It is perfectly legal to get one's financial and other business transactions executed through the instrument of PoA, whether a person is an NRI or a resident. 

In simple terms, a PoA is a document that legally authorizes and recognizes the PoA holder to execute and act on behalf of the NRI. As useful and convenient as this instrument is, it is a double edged sword. For, just as the PoA instrument bestows rights on the PoA holder to act on behalf of the NRI, it also makes such NRI undertake the liabilities and obligations that the PoA holder enters into on his (the NRI's) behalf. 

Therefore, care should be taken in selecting the person to grant a PoA.

General vs Specific PoA
A PoA may be general as well as specific.

A specific PoA is always preferable as against a general PoA that confers sweeping powers to the PoA holder. 

In a specific PoA, the PoA holder is authorized only for the particular transaction that has been mentioned in the PoA. For example, the specific PoA could be to do with investing in mutual funds. Such a PoA will not authorize the PoA holder to undertake any other transaction on behalf of the NRI apart from making mutual fund investments. For example, such a PoA holder will not be able to enter into real estate transactions on behalf of the NRI or buy and sell shares or even sign the tax return form. 

In the above case, an attested copy of the PoA has to be submitted to the mutual fund concerned along with the form for making the investment. 

Since the PoA is a powerful instrument which can be used as well as abused either intentionally or unintentionally, it is very important that the NRI gets it drafted from a competent lawyer. It is a case of being safe now than sorry later. 

Banking transactions are another area where a PoA is very useful. In fact, most banks have a pre-specified format (called mandate letter) that is issued along with the account opening form. Any resident person can be issued such a mandate to operate the bank account on behalf of the NRI.

However, such operations are restricted to withdrawals for local payments or remittance to the account holder(s) himself through normal banking channels. The resident PoA/Mandate holder cannot, however, repatriate outside India funds held in the account under any circumstances other than to the account holder himself, nor to make payment by way of gift to a resident on behalf of the account holder or to transfer funds from the account to another NRE account. This is as per A P (DIR Series) Circuar No. 37 dated 15 th March 2005.

To sum, a PoA can be issued by the NRI in favour of any resident individual for carrying out any legal transaction. Such a transaction could range from signing the tax return to buying or selling property to making investments in shares and securities and even to institute and defend legal suits.

However it cannot be emphasized enough that considering the power of this instrument, care should be taken that it is drafted appropriately and the person to whom it is issued is someone whom you repose your full trust in.

The expert, Sandeep Shanbhag, is an investment advisor.

If you are an NRI or are going to be an NRI soon and have any queries on taxation or legal issues relating to your status, do mail us at nri@moneycontrol.com .

Read our previous queries solved:
NRIs cannot open a PPF account
You may have to pay tax on foreign allowance
PAN must to operate demat account and file returns
You cannot transfer shares from your old demat to the new