Role Reversal : When Bankers Pay Up (Part 4/4)
Curious about the discussions of the earlier parts ??
For part 1 click here
For part 2 click here
For the penultimate part click here
Section 10(43) of the Income Tax Act,1961 provides that the amount received by the reverse mortgagor (as a loan) either as lump-sum or as instalments shall be exempted from tax. Further the initial mortgage of the property in favour of the lender shall not fall under the purview of “Transfer of Capital Asset” as per section 45, vide the provisions of Section 47(xvi) of the Income Tax Act,1961(although all types of mortgages are considered as ‘Transfer’ as per the provisions of the Transfer of Property Act 1882). In effect it can be stated that neither the mortgage of the property nor the receipt of the payments is chargeable to tax. However, if the property is either sold during the tenure of the loan or at the time of settlement, then that transaction would be considered as transfer of capital asset and consequently Tax on the resultant Capital Gains would have to be paid.
Having got an overall view of this side of the field let’s now flip the coin and take a glimpse at some of the drawbacks…… First and foremost, the one thing that stands out like a sore thumb is the amount of documentation involved. Further, as if to add insult to injury the reverse mortgagor would have to insure the property and pay the premium on it out of their own funds!! And the final nail in the coffin would be that in a country like India where the obsession for owning a house is unfathomable, would people really be willing to risk losing their prized possession just to meet their day to day expenses??
All said and done it’s up-to each and every one of you to decide whether or not such a transaction would be beneficial for you as, the situations vary from case to case and what may be a steal for one may prove to be a burden for another. In the end if you find that the pros outweigh the cons then there’s no stopping you from throwing your weight….. or house rather, behind it!! Happy New Year Folks!!