Under Section 47(xvi), any transfer of a capital asset as part of a reverse mortgage scheme is not considered a taxable transfer. This scheme, set up and approved by the Central Government, specifically benefits senior citizens.
How the Reverse Mortgage Scheme Works
Senior citizens who own a home can use a reverse mortgage to supplement their income. By mortgaging their house with a bank or housing finance company, they can receive a lump sum or regular income (monthly, quarterly, or annually). They continue to live in the house without needing to repay the loan during their lifetime.
Loan Terms and Usage
Typically, the loan amount is up to 60% of the home’s value. The bank or finance company will reassess the property value every five years. The loan can be used for home repairs, medical expenses, or other essential needs, but not for investments or trading.
Payments Through Annuities
Under the 2008 Reverse Mortgage Scheme, loans can be paid to an annuity institution, like the Life Insurance Corporation of India or any approved insurer, to provide regular annuity payments to the homeowner. This is in addition to the usual direct payments to the homeowner, either as periodic payments or a lump sum.