The elderly may finally get to live in peace with the finance ministry notifying the Reverse Mortgage Scheme, which would exempt from tax the income they earn by mortgaging their property.
The move comes after finance minister P Chidambaram announced in this year’s Budget that, “Reverse mortgage would not amount to transfer and the stream of revenue received by the senior citizen would not be income.”
Accordingly, the Central Board of Direct Taxes has now said that under the scheme, a capital asset would mean a residential house property which is located in India and individuals or married couples above 60 years of age will be considered as senior citizens. This will imply that the scheme will not be regarded as transfer of a capital asset and so would not attract capital gains tax. Also, the loan amount will be exempt from income tax for the borrower.
“Reverse Mortgage means mortgage of a capital asset by an eligible person against a loan obtained by him from an approved lending institution,” the CBDT in its notification has said. Further, the loan under reverse mortgage should not be for more than 20 years.
The CBDT notification comes into force from 15 April, 2008 and loans in 2007-08 will also be given exemption.
The scheme was put in place by the housing finance sector regulator, National Housing Bank, last year to ensure economic security to senior citizens, and about 18 many lenders and housing finance companies, including PNB, Dewan Housing, LIC Housing Finance launched the scheme. But so far it has not found many takers for a number of reasons, the lack of clarity on tax being one of them. In fact till last month, only about 2,000 senior citizens across the country have joined the scheme.