Banks seek tax clarity on reverse mortgage loans from IT department

The National Housing Bank (NHB) has raised its concerns regarding the tax treatment of reverse-mortgages in a letter to the Income Tax Department.

The letter said that this product which is similar to a loan against property, where the loan borrower receives a regular monthly payment from the lender, based on the owner’s equity in the house and the value of the property.

Bank customers want to know if these monthly payments are taxable. Technically they should not be, as the payments are in the nature of a loan, but banks want the I-T department to explicitly clarify this point.

Besides, bankers themselves want clarification on another point. The interest accrued on the monthly payments is booked as income, but banks want to pay tax on it only when the property is monetised and the interest actually earned.