Saturday, March 08, 2008

No tax on reverse mortgage income

In this budget, the taxation facets of
reverse mortgage have got been clarified. The contrary mortgage strategy was notified
by the National Housing Depository Financial Institution in the last budget. In this budget, the Finance
Minister have proposed to amend the Income Tax Act to supply that reverse
mortgage would not amount to 'transfer', and the income received by senior
citizens would not be taxed as 'income' in their hands. This measure has
been welcomed by lodging finance companies. The authorities have made it clear
that a loan under a contrary mortgage strategy would not be considered as transfer
of capital, thus putting it beyond the horizon of income tax. The
scheme was notified by the lodging finance sector regulator, National Housing
Bank, last twelvemonth to guarantee fiscal security to senior citizens. Subsequently,
many Banks and lodging finance companies had launched such as a scheme. However,
the demand for this strategy was low owed to deficiency of lucidity on the taxation treatment. The amendments proposed in the budget are a welcome move. The scheme
will not be regarded as a transportation of a working capital asset. As such, this volition not
attract working capital additions tax. Also, the loan amount will be exempt from income tax
for the borrower. In lawsuit of a contrary mortgage, the place owner
surrenders the statute title of the place to a fiscal entity. The fiscal entity
doesn't pay the full amount to the proprietor upfront. On the contrary, it pays out
a regular sum of money each calendar month for the agreed time. The proprietor acquires to remain in the
property along with his/her partner for their lifetime. Thus, the proprietor can
ensure a regular hard cash flowing in modern times of demand and bask the benefit of staying in
the property. After the owner's death, the place is transferred
to the establishment and not to the heirs. Change By Reversal mortgage is a relatively new
concept in India. The conception is quite popular in the developed states to
generate hard cash flows. The agreement will be available to those
above a specific age. The purpose is to do a house bring forth tax returns while it is
used by the owner. The amount paid out each calendar month is for a specific clip period of
time. The funding establishment have to bear the hazard of the
individual outliving the agreement. At the termination of the understanding period, the
monthly payments to the proprietor stop. The monthly payout depends on the value of
the property, the term of the understanding and the charge per unit of payment. The valuation
of the place is to be done by professionals. The full payout chemical mechanism -
calculation and calculation - depends on the law of probability. On
the decease of the owner, the partner can go on life on the premises. Only in
case both the hubby and married woman dice during the term of office of the scheme, the
institution will sell the property, take its share as per the understanding and
distribute the remainder among the heirs. As a concept, contrary mortgage
is of huge usage in unlocking the otherwise illiquid asset. Hitherto, immovable
property have been treated as one of the most illiquid asset. Change By Reversal mortgage
tends to unlock the liquidness potentiality of this asset. It assists the proprietor to get
a nice tax return from his immovable property, without having to portion with the

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