1. Under department 47(xvi) of the income-tax act, 1961 (“the act”), any transfer of a capital asset in a dealing of reverse mortgage under a scheme made and notified by the central government is not regarded as a ‘transfer’. Accordingly, the quantity obtained by somebody as a loan, either in lump sum or in instalment, in a dealing of reverse mortgage as above is exempt from tax under department 10(43) of the act.

2. On the tax treatment of reverse mortgages the direct taxes code bill, 2009 (‘the code’) is silent. As the code is silent on reverse mortgage, a question arises what will be its tax implica tions under the code?

No transfer of ownership of property by the borrower to the lender when the mortgage lender owned. The borrower remains the owner entitled to redeem the property by repayment of contributions. He has a right to carry on living in the house till death. Non-repayment of amounts obtained with interest wouldn’t invite action from lender. The explanatory memorandum to the Finance Bill, 2008 states that “in the context of a mort gage of hand, the intention is to ensure a stream of cash flow against the mortgage of a residential house and not to alienate the property.” To the same effect para 15. 3 of cbdt’s circular no. 1/2009 dated march 27, 2009. Accordingly, amount obtained on reverse mortgage wouldn’t attract capital gains tax in the finan cial year in which the quantity is obtained. The transfer/aliena tion of property occurs “at the point of alienation of the mort gaged property by the mortgagee for the intentions of recovering the loan. ” accordingly, taxable capital gains will arise in the year in which the mortgaged property is alienated by the mortga gee for recovering the loan.

4. Having regard to the nature of the dealing, it appears that the above position which prevails under the act will contin ue under the code similarly. Nonetheless, it is desirable that express provisions be integrated.