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 instalments, received under the scheme amounts to income was not included in total income, the products had few takers due to several problems.
While the annuity paid by banks was quite low and was tax free, if the bank tied-up with an insurer, the annuity amount was though higher but taxable because it was not considered as loan but interest.
By including LIC and other insurers as annuity sourcing institution and making annuity payment tax free, the government expects positive response for the scheme.
The scheme has been touted by many as social security for senior citizens, something that provided them regular income without the unnecessary hassle of taking loans.
Sanjay Dutt, executive managing director of Cushman and Wakefield says the product is excellent but banks need to build confidence of consumers in such product and create awareness about it. “Along with the fact that India is largely a young nation and senior citizens are relatively in minority, people in the country still believe in keeping hard assets,” Dutt said adding that RMS necessitates, in a way, surrendering the property to lenders, that is banks and housing finance companies. “Nobody wants to be the first victim of the unknown animal. There is lack of clarity while also there have been no incentives to people due to which they have kept away from the scheme.”
Dutt adds that the mortgage penetration in India is only 6 per cent as against 15-20 per cent in the US.
A senior official of a leading public sector bank said that a crucial factor, which critics of the policy overlook, is there is social cost to the scheme. “Indians still have attachment to their property. Most of the people who have taken reverse mortgage loan from us are from Mumbai and not Delhi because of cultural differences.