The Hindu Business Line : Banks seek tax clarity for reverse mortgage loans

Chennai, Sept 22 The National Housing Bank has written to the Income Tax department, conveying concerns of banks and their customers on a few issues relating to the treatment of loans from reverse mortgage arrangements under the Income Tax laws.Reverse mortgage is a new product that banks are now allowed to offer in which a homeowner borrows against the equity in his home and receives regular monthly payments from the lender.

Bank customers want to know if these monthly payments are taxable. Technically they should not be, as the payments are in the nature of a loan, but banks want the I-T department to explicitly clarify this point.

Besides, bankers themselves want clarification on another point. The interest accrued on the monthly payments is booked as income, but banks want to pay tax on it only when the property is monetised and the interest actually earned.

The Chairman and Managing Director of NHB, Mr S. Sridhar, told Business Line on Friday that the housing finance regulator had written to the I-T department and was awaiting a reply.

Separate laws

Mr Sridhar noted that in some countries there are separate legislations dealing with reverse mortgage and some banks had expressed a desire for similar legislation in India too. The law could have special provisions for dealing with, for example, litigation when the bank takes over the property.

Mr Sridhar said there would be no direct impact of the ‘sub-prime problem’ of the US on India. He observed that one of the causes of the problem was the practice of giving loans against the security of homes. These loans got into trouble when the value of the security declined. In India, both the Reserve Bank of India and NHB “frowned” at instances where banks lent money against the security of homes, Mr Sridhar said.