Reverse mortgage means a mortgage on which the borrower need not have to repay the loan amount (principal and interest) taken against a residential house property of a senior citizen. Reverse mortgage was introduced to address the financial needs of senior citizens owning residential house property. It enables them to receive a regular income on fixed installments like pension. The home owner is under no obligation to make payments while the borrower occupies the property, as in the case of a conventional mortgage. Loan is recovered by selling the mortgaged property by the bank after the death of the borrower.
Legal heirs/legatee of the deceased borrowers will be given first option to settle the loan, along with the accumulated interest, without sale of the property. If the property is not taken by the legal heirs then it will be sold to outsiders and the surplus, if any will be paid to legal heirs.
In India, transfer arising under the reverse mortgage scheme taken by a senior citizen, will not attract capital gains tax. Further, any amount received as a loan, either in lump sum or in installment, under the reverse mortgage scheme are also not taxable[section 10(43)]