By way of Reverse Mortgaging
of the house, a Senior Citizen gets monthly advance
to meet daily living expenses. The amounts are
not to be repaid till death of the senior citizen
and spouse. There are variants like lump sum payment(s),
credit line etc. The amounts would accrue as a
loan with interest. The time span and amount of
the loan are dependent upon valuation of the house
from time to time.
I presume
that the amounts so received, and being a loan,
are not treated as income of the Senior Citizen.
I suggest that the lending institution should
be permitted to issue an annual certificate giving
the break-up of amounts treated as accrued instalments
of principal and interest (as housing finance
companies do for their loans) to enable the Senior
Citizen get tax concessions under section 80C
( limit Rs. One lakh along with other eligible
instruments) and up to Rs. 1.50 lakhs under section
24, respectively. This will help a Senior Citizen
in case he has a taxable income.
Another area
of concern is the valuation of property from time
to time. Specially, after the death of the Senior
Citizen and spouse, the lending financial institution
may be in a hurry to dispose off the property
early to recover its loan without aiming at getting
proper market price. As the difference goes to
legal heirs, they may object, and genuinely too.
A proper mechanism is needed for valuation.
Cooperative
societies may also try to charge transfer fees
while transferring the flat to the lender or a
buyer. Transfer fees are not payable if the flat
is transferred to a nominee or legal heir. The
same rule shall apply here as the property is
transferred after the death of the Senior Citizen.
There are
taxation issues relating to surplus amount to
be paid by the financial lending institution to
the legal heirs, stamp duty requirements etc.,
which are grey areas needing more detailing.
In view of
the above, the scheme may not be popular and legal
heirs may not cooperate till all legal and taxation
issues are resolved immediately. An independent
authority with the support of tax authorities
is a must for valuations. Legal documentation
has to be foolproof. Who will bear various costs
for processing and documentation of stamp duty?
I hope ultimately the Senior Citizens are not
further miserable.
V.P.Kamath,
Mumbai
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