Is annuity under Reverse Mortgage Tax Exempt?

Invest In Tax Saving Mutual Funds Online

Download Tax Saving Mutual Fund Application Forms

Buy Gold Mutual Funds

Call 0 94 8300 8300 (India)

 

 

In the wake of latest amendment in the reverse mortgage scheme by the Government (vide modification no. S.O. 3034(E) dated 7th October 2013), the lending institutions can disburse the amount of the reverse mortgage loan to an "Annuity Sourcing Institution" which includes LIC and any other insurer registered with IRDA.

 

Prior to this amendment, the approved lending institutions were allowed to disburse the amount of reverse mortgage loan to the reverse mortgagor by way of either periodical payment or lump sum payment. With this notification, the approved lending institutions are allowed to disburse the amount of the loan to the "Annuity Sourcing Institution".

 

Besides, under this amendment, the tenure of reverse mortgage loan has been extended from 20 - years to the residual lifetime of the borrower where the loan is disbursed to the "Annuity Sourcing Institution".

The exemption in respect of reverse mortgage loan is provided in Section 10(43) which reads as under "10[(43) any amount received by an individual as a loan, either in lump sum or in installment, in a transaction of reverse mortgage referred to in clause (xvi) of section 47". Thus the amount of periodical payments received by the individual as loan either in lump sum or in installment under the scheme was tax exempt. But this section has not been amended and is known that the CBDT does not have power to amend the Income Tax Act unless it has been authorised under the act to do so.

 

 

Moreover what is exempt under Section 10(43) is the amount of loan received either periodically or lump sum under the scheme of reverse mortgage. By virtue of the notification, what has changed is that the loan amount handed over to annuity sourcing institutions is also exempt in the hands of mortgagor. However what the reverse mortgagor receives from the insurance company is an annuity which is not covered under Section 10(43) so the annuities continue to be taxable in the hand of the mortgagor. So this notification effectively does not change anything about the taxability, neither the money received from the lender nor the annuity received from the insurance company as former continue to remain exempt and the later continue to be taxable.

 

The section 47(xvi) which is provides for that certain transaction not to be treated as transfer for the purpose of capital gains and which is referred to in section 10(43) reads: 47(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government. So the act of mortgaging the property for reverse mortgage will not amount to transfer which any way does not amount to transfer even in absence of the above exclusion.

 

I have been reading in the press about the annuity received from insurance company by taking a loan under reverse mortgage scheme being exempt from tax are far from the fact as far as my reading of the recent notification, read with the scheme and provisions of Section 10(43) and 47(xvi) goes.

 

It is possible that the government might have intended to exempt the annuity from income tax act, but the notification does not seem to be translating this intention into action. In order to make the annuity received by the reverse mortgage from insurance Company exempt is to amend the provisions of Section 10 (43) of Income Tax to include the amount of annuity received from annuity sourcing institutions

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief '96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

1. Largecap Funds Invest Online
1. DSP BlackRock Top 100 Fund
2. ICICI Prudential Focused Blue Chip Fund
3. Birla Sun Life Front Line Equity Fund
2. Large and Midcap Funds Invest Online

1. ICICI Prudential Dynamic Plan
2. HDFC Top 200 Fund
3. UTI Dividend Yield Fund
2. Mid and SmallCap Funds Invest Online

1. Reliance Equity Opportunities Fund
2. DSP BlackRock Small & Midcap Fund
3. Sundaram Select Midcap
4. IDFC Premier Equity Fund
3. Small and MicroCap Funds Invest Online

1. DSP BlackRock MicroCap Fund
4. Sector Funds Invest Online

1. Reliance Banking Fund
2. Reliance Banking Fund
5. Tax Saver MutualFunds Invest Online
1. ICICI Prudential Tax Plan
2. HDFC Taxsaver
3. DSP BlackRock Tax Saver Fund
4. Reliance Tax Saver (ELSS) Fund
6. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund