Save ₹30 Lakh & Avoid Capital Gains Tax: How Senior Citizens Can Use Reverse Mortgage Smartly

With rising medical bills, no pension, and increasing living expenses, many senior citizens find themselves asset-rich but cash-poor. If you or your parents own a home, there’s a government-approved way to generate monthly income without selling the house or paying capital gains tax.

Let’s know about Reverse Mortgage Loans, a lesser-known but financial tool that can turn your property into a regular income stream, while also saving up to ₹30 lakh in taxes and capital preservation for your heirs.

What Is a Reverse Mortgage?

Unlike traditional loans, a reverse mortgage allows senior citizens aged 60 and above to mortgage their self-occupied residential property to a bank or NBFC. In return, they receive monthly payouts, a lump sum, or a combination, without giving up ownership or needing to repay the loan during their lifetime.

There’s no EMI. No pressure to sell.

Once the borrower passes away, the lender sells the property to recover the dues. Any surplus amount is handed over to the legal heirs, or the family can repay the loan and retain the house. Let's look at an example to understand how this works.

How Mr Sharma Used Reverse Mortgage to Fund His Retirement Stress Free

Take the case of Mr Sharma, a 70-year-old retired government employee living in Pune. He owns a house worth ₹1 crore but has no pension or regular income. Selling the house is not an option, because he wants to pass it on to his children.

Instead, he opts for a reverse mortgage loan from a bank or NBFC. Based on the property value, he receives ₹25,000 per month for 15 years, adding up to a total income of ₹45 lakh, tax-free.

Throughout this period, Mr Sharma continues to live in his house. He pays no EMI or interest. After his demise, the bank sells the property. If the outstanding loan amount (including accrued interest) is ₹70 lakh and the house fetches ₹1 crore, his children still receive ₹30 lakh. Alternatively, they can repay ₹70 lakh and retain the home.

Key Points to Keep in Mind about Reverse Mortgage

• Minimum age: 60 years (58 for spouse in joint applications)
• Property: Must be self-occupied and clear of legal issues
• Loan amount: Calculated as a percentage of market value (usually after a 20% margin)
• Payout period: Up to 15 or 20 years, depending on age and loan terms
• Repayment: Only after the borrower’s lifetime

Saving Tax With Reverse Mortgage

What makes this even more appealing is the complete tax exemption.

• Under Section 47(xvi), mortgaging the property is not considered a transfer, so there’s no capital gains
• Under Section 10(43), all payouts, whether monthly or lump sum, are fully exempt from income tax
• You receive tax-free income without increasing your tax burden

It’s especially beneficial for senior citizens who want to avoid selling assets or dipping into fixed deposits that earn taxable interest.

Read More: Income Tax High-Value Transactions: Mandatory Reporting Limits Financial Entities Must Report Under SFT!

Conclusion

Reverse mortgage loans offer an effective route for senior citizens to derive tax-free income from their home equity under protected government schemes. With exemptions from capital gains and income tax, they ensure stability during retirement, although considerations such as tenure and interest must be evaluated cautiously.

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in securities are subject to market risks. Read all related documents carefully before investing.