The Hindu Business Line : Clear the air for the heirs as well

The Finance Bill, 2008 has cleared the air for senior citizens resorting to reverse mortgage of their residential houses — no tax either on account of capital gains or on the lump-sum or periodic payments received from bank or financial institution.

There is now complete relief for senior citizens resorting to reverse mortgage — no financial commitments and no tax commitments either on the transaction. They could not have asked for more except perhaps something that would lessen the pain brought by their conscience being tugged.

Doting parents

An Indian parent simply dotes his children even if they are sufficiently grown up. His fervent wish is always that he should not even posthumously harm his children. Which is the major reason why ever since its inception the reverse mortgage scheme has not been lapped up by them.

The Finance Minister hopes that conferring absolute tax exemption on receipts from the transaction would endear the scheme to them. May be it would but he could have given something for the heirs as well.

A reverse mortgage scheme in India is typically for 15 years or until the unfortunate demise of the mortgagor, whichever is earlier. In case the senior citizen dies and the legal heirs are called upon by the mortgagee to pay the debt along with interest accumulated by their father during his lifetime, in all fairness they must get some tax relief.

Specific amendment needed

The Hindu law does enjoin upon a son to discharge the reasonable debts piled up by his father during his lifetime but that does not mean he does not deserve the taxman’s sympathy. The heirs who clear up the loan thus accumulated must be allowed to claim benefit of the principal portion under Section 80C and the interest portion under Section 24.

In the absence of a specific amendment to these effects, a legal heir may be denied these tax benefits because these are available only when a house is acquired. In his case what he has done is not to acquire the house; the house is falling on his lap so to speak.

The tax benefits must be granted whether a fresh loan is taken to pay off the father’s debts or the debts are paid off from one’s own resources. In the latter case, an exception must be made by Section 80C to allow the principal amounts in instalments. Section 24 already allows construction-stage interest to be amortised in five equal instalments.

Deserves sympathy

A little sympathy from the taxman for the wards would further endear the reverse mortgage scheme to our senior citizens besides making life that much easier for those left behind even if they were derelict in discharging their duties to their parents during their lifetime driving them into the arms of the mortgage company.

(The author is a Delhi-based chartered accountant.)

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