Reverse mortggae tax laws amended for clarity: Union Budget 2008-09

The Union Budget 2008-09 has proposed to amend the Income Tax Act to clarify tax exemption on reverse mortgage loans. Experts had attributed the failure of this credit instrument in past years to the lack of clarity regarding taxation.

Reverse mortgages are credit instruments where senior citizens can avail loans against self-owned, self-occupied properties.

The amendment clarifies that income received by senior citizens will not be considered income in tax parlance. This will mean that such receipts will be exempted from income tax.

Also, reverse mortgages will not be considered as transfer of property. This means it will not be treated as a capital asset and therefore will not attract capital gains tax. There will be capital gains tax only at the time of selling the property to repay the loan.

Earlier, the Transfer of Property Act considered any mortgage as a transfer. The I-T Acthowever, had a different definition for transfer.

The amendments have been made to the Section 10 of the I-T Act. The ministry has introduced a new clause 10 (a) in Section 47that says a reverse mortgage will not amount to a transfer.