Under the Income Tax Act, a senior citizen is a person who at any time during the previous year has attained the age of 65 years or more. There are certain benefits available to senior citizens under the Income Tax Act.
- Tax rebate u/s 88B: Rebate under this section to the extent of Rs.20,000/- was available to all senior citizens whether they are pensioners or self employed or traders etc. It may be noted that no rebate u/s 88B is available from A.Y.2006-07 onwards. However, the maximum amount not chargeable to tax in respect of senior citizens has been increased to Rs.2,25,000 w.e.f. A.Y. 2009-10. Thus, no tax is payable by a senior citizen if the total income is upto Rs.2.25 lacs for the A.Y.2009-10.
- Benefits provided by Finance Act 2007: The deduction available u/s 80D for medical insurance premium paid is to be increased to Rs.20,000 for senior citizens. Secondly, the deduction available u/s 80DDB in respect of expenditure incurred on treatment of specified diseases is to be increased to Rs.60,000 for senior citizens.
- In order to resolve the tax issues arising out of the reverse mortgage scheme introduced by the National Housing Bank (NHB), the Finance Act 2008 has added a new clause (xvi) in Section 47 of the I.T. Act which provides that any transfer of a capital asset in a transaction of reverse mortgage under a notified scheme shall not be regarded as a transfer and shall, therefore, not attract capital gains tax. This ensures that the intention of a reverse mortgage which is to secure a stream of cash flow against the mortgage is not contradicted by treating the same as transfer.
The second issue is whether the loan, either in lump sum or in instalments, received under a reverse mortgage scheme amounts to income. Receipt of such loan is in the nature of a capital receipt. However, with a view to providing certainty in the tax regime pertaining to the senior citizens, the Finance Act 2008 has amended section 10 of the Income Tax Act to provide that such loan amounts will be exempt from income tax.
Consequent to these amendments, a borrower, under a reverse mortgage scheme, will be liable to income tax (in the nature of tax on capital gains) only at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.
These amendments will take effect from the 1st day of April, 2008 and will accordingly apply in relation to assessment year 2008-09 and subsequent assessment years.