Senior citizens need not lean for financial support

Senior citizens, who have a home of their own or a property in their name, may not need to lean on their kids for financial support in their old age. With the clarification on the taxation issues relating to the reverse mortgage scheme, senior citizens can expect to receive steady monthly earnings without the amount being taxed.

Here���s how it works: If you are a senior citizen (60 years and above) and in need of steady source of income, banks and some institutions offer you regular monthly earnings based on the market value of your home or property. For this, you need to pledge your house to the lender.

A few banks had launched the scheme this financial year, but it didn���t take off owing to knotty tax issues. The government has now made it clear that the loan taken by a senior citizen under this scheme, whether received as a lump sum or in installments, will be exempt from income-tax. Nor will it attract capital gains tax since it���s not treated as a transaction anymore.

Now, the capital gains tax will apply only when the borrower dies, or is unable to repay the loan forcing the lender to sell off the property. Said LIC Housing chief executive SK Mitter: ���The announcement that reverse mortgage transactions and subsequent cash flows may not be taxed will be a trigger for the product to take off.��� But he said more clarity is needed on certain issue like the treatment of interest earnings accrued.

With inputs from Mayur Shetty