Capital Gains Tax – CBDT Notifies Reverse Mortgage Scheme
As per section 45 of the Income Tax Act, any profits or gains arising from the transfer of a capital asset shall be chargeable to Income Tax under the head, “Capital Gains”
Under Section 47, nothing contained in section 45 shall apply to certain transactions like transfer due to partition, amalgamation, demerger, etc., Into this exclusion, a new item was added by Finance Act, 2008, by a new clause xvi,
"(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government.”
That is, no Capital gains Tax is payable on the Capital Gains in case of reverse mortgage - under a scheme made and notified by the Central Government.
So the Scheme had to be made and notified by the Government, which it has now done.
The Scheme is called the Reverse Mortgage Scheme, 2008.
“Reverse Mortgage” means mortgage of a capital asset by an eligible person against a loan obtained by him from an approved lending institution;
Who is the eligible person?
i) any person, being an individual, who is of, or above, the age of sixty years; or
ii) any married couple, if either of the husband or wife is of, or above, the age of sixty years
In his Budget speech 2007, the Finance Minister had stated, “The National Housing Bank (NHB) will shortly introduce a novel product for senior citizens: a 'reverse mortgage' under which a senior citizen who is the owner of a house can avail of a monthly stream of income against the mortgage of his/her house, while remaining the owner and occupying the house throughout his/her lifetime, without repayment or servicing of the loan.”
In his 2008 Budget Speech the FM declared, “The Reverse Mortgage Scheme was notified by the National Housing Bank in the current financial year. In order to clarify the tax issues arising out of the scheme, I propose to amend the Income Tax Act to provide that:
(i) reverse mortgage would not amount to "transfer"; and
(ii) the stream of revenue received by the senior citizen would not be "income";
In pursuance, the Government has now notified the Scheme. The Scheme is deemed to have come into effect from 15th April 2008.
NOTIFICATION NO , Dated: September 30, 2008