In an effort to bring financial relief to senior citizens, Budget 2008-09 has doused all contention regarding the reverse mortgage loan, which is meant to provide a regular income to senior citizens by mortgaging house property. As per the Budget the income arising out of the scheme will not be considered as income for tax purpose and hence will not attract any income tax. “So far we have not heard of any reverse mortgage scheme being sold primarily because the tax treatment was not clear. With clarity coming through we should see more of these products hitting the market,” said Ameet Patel, partner, Sudit K Parekh and co, a chartered accountant firm.The Budget also cleared the capital gains tax treatment on reverse mortgage products as it said that it will not amount to transfer and hence it will not attract any capital gains tax. Said Vikas Vasal, executive director, KPMG: “Under the income tax act, a transfer of asset attracts a capital gains tax. Since reverse mortgage is not a transfer, it will not attract any tax.” Presently six financial institutions are offering reverse mortgage schemes: Dewan Housing Finance Corporation, Bank of Baroda, HDFC, LIC Housing, Allahabad Bank and Punjab National Bank.Said Suresh Sadagopan, Mumbai based financial planner: “For some house is the only major asset. In that sense it will be beneficial. However, the products in the market are not great and they can be looked at as a last resort.”The Budget also extended the benefit of Section 80C to two instruments — Senior Citizens Savings Scheme and the five-year Post Office Time Deposit Account. However, the benefits of Section 80C will come into effect only from April 1, 2007, i.e., from financial year 2007-08. Senior Citizens Savings Scheme is a five-year scheme that offers a return of 9 per cent payable quarterly. However, it comes with an investment cap of Rs 15 lakh. This investment qualifies for tax deduction up to Rs 1 lakh under Section 80C. The account can be extended by three more years. Post Office Time Deposit however ranges from 1-5 years. It is on the five year term that qualifies for a tax deduction and it offers a rate of 7.5 per cent. “The investor should maximise the Senior Citizen Savings Scheme since it offers nine per cent and in now under 80C. However, post office time deposit are not the best product going as of now. An individual would be better off through fixed deposit by the banks that come under Section 80C.”
