Clarification: Tax & reverse mortgage

The government on Friday made it clear that the loan under Reverse Mortgage Scheme will not be considered as transfer of capital, thus putting it out of purview of the income tax.

"Reverse mortgage would not amount to transfer and the stream of revenue received by the senior citizen would not be income," Finance Minister P Chidambaram [ Images ] said, while presenting 2008-09 Budget.

The scheme has been notified by the housing finance company regulator, National Housing Bank last year to ensure financial security to senior citizens.

Subsequently, many banks and housing finance companies including Punjab National Bank [ Get Quote ], Dewan Housing, LIC Housing Finance [ Get Quote ] have already launched such scheme.

Commenting on the Budget proposal, HDFC [ Get Quote ] Joint Managing Director Renu Sud Karnad said, the reason for low demand for this scheme was due to the lack of clarity on the tax treatment.

The amendments proposed in the budget are a welcome move, wherein the scheme will not be regarded as a transfer of a capital asset and therefore not attract capital gains tax.

Secondly, the loan amount would be exempted from income tax for the borrower, she said, adding no tax benefits have been extended to housing finance lenders as regards reverse mortgages.

Your Budget search made easy!