Silent Service

Direct tax code is silent on the taxation of reverse mortgage

Anand G. Srinivasan

Direct Tax Code Bill 2009, says nothing about taxation of reverse mortgage. The author expresses the view that given the nature of the transaction, the situation under the Income Tax Act of 1961, will continue in the code, as well. However, it is advisable to include an express provision.

1 Under Article 47 (XVI) "title =" Income Tax Acts ">" Law on Income Tax Act 1961 ( "Act"), transfer of assets in reverse mortgage transactions under the program developed and provided by government central not be considered as 'transfer'. Therefore, the amounts received by a person with a loan, either lump sum or in installments in the transaction reverse mortgage, as above, is exempt from tax in accordance with paragraph 10 (43) of the Act.

2 = Target _blank "title = "Tax Department"> title = "Direct KP"> Direct Tax Code Bill 2009 (the "Code") concerning the taxation of reverse mortgages. Since the code says nothing about the reverse mortgage, the question arises, what will the tax consequences in the code?

3 There is no definition "reverse mortgage" or by law or under the Code. Reverse mortgage is allegedly due to the payment flows will be canceled. Instead of monthly repayment of the borrower to the lender, as with traditional mortgages, the lender makes payments to the borrower. During the reverse mortgage is outstanding, the borrower is married and has a title for this, without having to make monthly mortgage payments.

No transfer of ownership of real estate real estate lender by the borrower when the mortgage lender. The borrower remains the owner is entitled to redeem property by paying contributions. Has the right to continue living at home until his death. Non-payment of amounts received with interest not to invite action by the lender. Preamble Budget bill for 2008 that "through reverse mortgage, the goal is to ensure the flow of funds from the mortgage on the house and not to alienate the property. To the same effect as 15.3 CBDT Circular No.1/2009 dated 27 March 2009. Therefore, the amount received in a reverse mortgage do not attract capital gains in the year in which the amount received. Transferring or disposing of property occurs "when the disposition of real estate mortgage by the creditor in order to recover the loan. "With regard to capital gains tax will appear in the year in which the mortgaged property is passed by the creditor to repay the loan.

4 Due to the nature of the transaction shows that the existing situation in the past under the Act continue under the code. However, it is desirable that the rules are clearly defined.

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