Delhi, India (PressExposure) January 13, 2010 -- A property owner is not liable to pay both capital gains tax and income tax in the case of income from this scheme, explains Ashish Gupta
Reverse mortgage is a relatively new concept here. It is yet to gain significant acceptance. The concept is quite popular in the developed countries as a means generate cash flows for senior citizens.
In case of a reverse mortgage, the property owner surrenders the title of the property to a financial entity. The financial entity doesnât pay the entire amount to the owner upfront. It pays out a regular sum each month for an agreed duration. The owner gets to stay in the property along with his spouse for their lifetime. Thus, the owner can ensure a regular cash flow in times of need and enjoy the benefit of staying in the property. After the ownerâs death, the property is transferred to the institution, and not to his heirs.
The arrangement will be available to those above a specific age. The aim is to use the property and make it generate a return at the same time. The financing institution has to bear the risk of the individual out-living the agreement. At the expiry of the agreement period, the monthly payments to the owner stop.
The monthly payout depends on the value of the property, the term of the agreement and the rate of payment. The valuation of the property is to be made by professionals. The entire payout mechanism - calculation and computation - depends on the law of probability. Property can thus generate a regular cash flow for senior citizens to supplement their income. A reverse mortgage scheme helps senior citizens address their financial requirements. They can unlock the value of a house by mortgaging it with a financial institution such as a bank, and derive regular payments during the contract period.
Under this scheme, the senior citizen is not required to service the loan during his lifetime or period of contract. He does not have to worry about the monthly repayments of principal and interest amounts to the financial institution.
On the death of the property owner, or on his disposing off the house, the loan is repaid along with accumulated interest, through the sale. The senior citizen or his legal heirs can also repay or prepay the loan along with accumulated interest to release the mortgage without opting to sell the property.
The value of the property is generally revisited periodically. If the valuation has increased, the senior citizen is given an option to increase the loan.An advantage of this scheme is, under the provisions of the Income Tax Act, any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the centre is not regarded as a transfer, and hence, does not attract capital gains tax. Moreover, any amount received as a loan either in lump sum or instalments under such a scheme, is also not regarded as income, and hence, not liable to income tax.
Courtesy:- Times Property dt:- 09-01-2010