Payment under reverse mortgage scheme not taxable

SC Vasudeva

Q. The provisions of the Income-tax Act contain some provisions with regard to reverse mortgage. As I understand, the amount received under the Reverse Mortgage Scheme would be chargeable to tax as the income of the recipient. Is my understanding correct? Please clarify. — Raja Ram

A. The provisions of the Income-tax Act, 1961 (The Act) clarify that any payment received in respect of reverse mortgage of a house property, whether in instalments or lump sum, will not be taxable. The capital gain will be payable by the owner as and when the property is eventually sold by the mortgagee to recover the loan. Your understanding is, therefore, not correct. The provisions of the Act, in fact, clarify that no tax would be payable in respect of the money received under the reverse mortgage scheme.

Q. This is with reference to your explanation in these columns on December 23, 2019. Kindly clarify if the total income of a senior citizen (aged above 70 years) is less than Rs 5 lakh, is he required to file tax return or can he stop filing the return if his income is not likely to exceed above Rs 5 lakh in future. And can he start filing return again when his total income exceeds Rs 5 lakh, or any similar exemption limit, in future. — Ravi Rana

A. A resident individual is not required to file return in case his income is below the taxable limit. However, if such an individual is claiming deduction under Chapter VIA (for example, Section 80C which provides for deduction of the amounts deposited in PPF, contribution to EPF or the payment of LIC payment etc.) of the Income-tax Act, 1961 (The Act), he will have to file a return of income. It may be added that you will be required to file the income-tax return in case the income of Rs 5 lakh has been arrived at after claiming deduction under Section 80C of the Act.

It may further be added that a new proviso has been inserted in Section 139 of the Act which is applicable for assessment year 2020-21 which requires that following persons will have to file a return even if their total taxable income is below the taxable limit.

(a) If one has deposited an amount or aggregate of the amounts exceeding Rs 1 crore in one or more current accounts maintained with a banking company or a co-operative bank; or

(b) has incurred expenditure of an amount or aggregate of the amounts exceeding Rs 2 lakh for himself or any other person for travel to a foreign country; or

(c) has incurred expenditure of an amount or aggregate of the amounts exceeding Rs 1 lakh towards consumption of electricity; or

(d) fulfils such other conditions as may be prescribed. You may thus keep in view the aforesaid points before taking a decision with regard to the filing of your return of income.

Q. Kindly advise whether extension period is to be factored in for the calculation of gratuity. I joined Shri Mata Vaishno Devi University, Katra, as a professor in Computer Science & Engineering on October 16, 2007 and retired on November 30, 2011 on attaining the age of 62 years (the age of superannuation for retirement was reduced from 65 years to 62 years). At the same time, I was allowed an extension of two years up to November 30, 2013 on the same post on last drawn salary without any break in service. Another extension of one month was allowed to me up to December 31, 2013. However, I resigned in the second extension period and served the university up to December 21, 2013. The total period of my service at the university, including the extension period, is slightly more than six years.

If the extension period is allowed to be included in the total service then the gratuity becomes admissible to me. However, the university, despite my requests, has not paid the gratuity to me. In a query published in these columns on April 8, 2019, you had advised that the extension period is to be factored in for the calculation of pension and gratuity being a period of continuation of service. It may please be advised, as under which government rule/circular, the extension period is to be factored in for the calculation of gratuity so that I can quote the same to the university. — ML Garg

A.The issue raised by you will have to be decided on the basis of the service rules which are applicable to the employees of the university. It would be advisable for you to look into such service rules and ascertain whether the extension granted to you will be covered within the term "continuation of service". In case the university continued to show you as an employee for the purposes of provident fund, it may be possible to argue that the extension period should be taken as continuation of service. The reply given on April 8, 2019 was on the basis of the procedures normally followed in the case of government servants who are allowed extension beyond the retirement date. The same was not based on any rule or circular. However, in your case, the service rules applicable to the university will have to be looked into. A rule or circular of government may be the last resort.