A notification from the income tax department has exempted annuities and extended the scheme to the lifetime of a borrower. The core issue, however, is that the scheme has not taken off.
The income tax department on October 22, notified that annuity payments to the senior citizens availing of the reverse mortgage scheme (RMS) would not be taxed. Not only that, the scheme which was so far available only for 20 years, will now be available for the entire life of those taking the product.
The move is though expected to provide some momentum to the scheme, which was launched in 2007 but is yet to pick up, what is needed is, say experts is the creation of awareness about the scheme.
The scheme was launched with much fan fare in 2007-08 with a view to provide some succour to senior citizens, ie. those above 60, who in many cases, have no one to fall back on for their monetary needs.
According to the National Housing Bank (NHB), which administers the scheme, around 7,200 people have availed of the RMS facility since its inception and banks have so far sanctioned only Rs 1,800 crore and disbursed Rs 800 crore under the scheme.
Though a large number of public sector banks have announced the scheme, not many have actively worked on it. PNB Housing Finance has so far received only 130 cases worth Rs 20 crore, a very insignificant amount when, according to NHB conservative estimates, the potential reverse mortgage loan market is Rs 20,000 crore.
According to the scheme, those in need of money can mortgage their property with a lender (scheduled banks and housing finance companies) and receive regular payments from them in form of either instalment or in lumpsum.
The loan is not to be serviced as long as they are alive and occupy the property. The maximum period of the loan hitherto was 20 years. Now, after the Central Board of Direct Taxes notification, it will be for the lifetime of the borrower while LIC and other IRDA-registered insurers have been included as annuity sourcing institutions. On borrower’s death, the loan is repaid through sale of property though heir can repay the amount and retain the property.
Earlier, though as per Clause (xvi) in Section 47 of the Income-tax Act, 1961, the transfer of property was not considered a transfer and was exempt from capital gains tax, while loan