Capital gains tax relief: How senior citizens can monetise property smartly with reverse mortgage loan
Senior citizens looking to unlock the value of their homes without selling them can benefit from reverse mortgage loans. These loans provide regular payouts while offering full exemptions from capital gains tax under specific sections of the Income Tax Act. With rising retirement needs, reverse mortgages are emerging as a tax-efficient solution for elderly homeowners.
- Jun 26, 2025,
- Updated Jun 26, 2025 3:34 PM IST
As financial needs rise for India’s aging population, a reverse mortgage loan is increasingly being seen as a lifeline for senior citizens looking to convert their property equity into a steady income stream. Unlike traditional mortgages, where borrowers make EMI payments, a reverse mortgage works in reverse—the lender pays the homeowner, either as a lump sum, in regular monthly payouts, or as a line of credit. Importantly, senior citizens opting for this loan under a government-notified scheme also enjoy key tax benefits, including exemption from capital gains tax.
Under Sections 47(xvi) and 10(43) of the Income Tax Act, 1961, the proceeds received from a reverse mortgage loan are not treated as taxable income. Additionally, no capital gains tax is levied when the property is mortgaged to the lender under the scheme.
“The transfer of a residential house property by way of a reverse mortgage as per the Reverse Mortgage Scheme made and notified by the Central Government for senior citizens, is not liable to be taxed as Capital Gain,” the Income Tax Department says.
“Even the loan amount received is not taxable under any other head of income,” it adds.
The tax clarity has also been outlined in expert commentary on the subject.
“The senior citizens can take benefit of exemption of tax from the amounts received under reverse mortgage as follows:
Ø The transfer of such residential house property by way of reverse mortgage as per the Reverse Mortgage Scheme notified by Central Government for senior citizens is not liable to be taxed as capital gains as per Section 47(xvi) of the IT Act.
Ø The payments received under the reverse mortgage, either in instalment or lump sum by an Individual would be exempt from tax u/s 10(43) of the IT Act.”
Explaining the mechanism, CA Dr. Suresh Surana said, “Reverse mortgage is a type of loan facility which provides an option to senior citizens to replace their regular income stream... The receipt of such loan would be in the form of a lump sum, fixed monthly payments, etc., in consideration of mortgage of the house property.”
He noted that the house must be self-occupied and free of legal disputes, and banks generally assess the property’s market value while maintaining a margin (typically 20%). The loan is repaid not by the borrower, but recovered by the lender from the sale of the house after the borrower's death or upon breach of conditions.
To qualify for a reverse mortgage, an individual must be at least 60 years old. In case of a joint application, many banks stipulate the spouse must be at least 58 years old. For example, SBI, which currently offers reverse mortgage loans at 10.55%, requires these age thresholds.
“A reverse mortgage loan is a useful financial tool for senior citizens who own a home but lack regular income... they can pledge their self-occupied residential property to a bank or NBFC and receive regular payouts without relinquishing ownership or possession during their lifetime,” said Dinkar Sharma, Company Secretary and Partner at Jotwani Associates.
Sharma illustrated the case of a 70-year-old Delhi resident who uses a Rs 1 crore property to receive Rs 25,000 monthly for 15 years, without repayment during his lifetime. Post his death, the bank sells the house to recover the dues. If the sale proceeds exceed the loan, the remainder goes to legal heirs. Alternatively, heirs can repay the full dues and retain ownership.
This structure offers senior homeowners financial independence while sidestepping immediate capital gains tax. However, when the property is ultimately sold by the bank or heirs, regular capital gains rules apply.
Yet, the product is not without drawbacks. While borrowers retain the right to live in their home until death, most reverse mortgage loans have a fixed tenure of 10–15 years. Those who outlive this period may face uncertainty about continued payouts.
Additionally, reverse mortgage interest rates are significantly higher than regular home loans. For instance, SBI charges 10.55% for reverse mortgage loans, compared to home loans that begin at just 7.5% for creditworthy borrowers.
Thus, while reverse mortgages are effective in bridging retirement cash gaps, they may not suit everyone—especially those intending to pass on their home as inheritance. Families must weigh the financial comfort offered to elders against the cost and complexities involved in reclaiming the property later.
As financial needs rise for India’s aging population, a reverse mortgage loan is increasingly being seen as a lifeline for senior citizens looking to convert their property equity into a steady income stream. Unlike traditional mortgages, where borrowers make EMI payments, a reverse mortgage works in reverse—the lender pays the homeowner, either as a lump sum, in regular monthly payouts, or as a line of credit. Importantly, senior citizens opting for this loan under a government-notified scheme also enjoy key tax benefits, including exemption from capital gains tax.
Under Sections 47(xvi) and 10(43) of the Income Tax Act, 1961, the proceeds received from a reverse mortgage loan are not treated as taxable income. Additionally, no capital gains tax is levied when the property is mortgaged to the lender under the scheme.
“The transfer of a residential house property by way of a reverse mortgage as per the Reverse Mortgage Scheme made and notified by the Central Government for senior citizens, is not liable to be taxed as Capital Gain,” the Income Tax Department says.
“Even the loan amount received is not taxable under any other head of income,” it adds.
The tax clarity has also been outlined in expert commentary on the subject.
“The senior citizens can take benefit of exemption of tax from the amounts received under reverse mortgage as follows:
Ø The transfer of such residential house property by way of reverse mortgage as per the Reverse Mortgage Scheme notified by Central Government for senior citizens is not liable to be taxed as capital gains as per Section 47(xvi) of the IT Act.
Ø The payments received under the reverse mortgage, either in instalment or lump sum by an Individual would be exempt from tax u/s 10(43) of the IT Act.”
Explaining the mechanism, CA Dr. Suresh Surana said, “Reverse mortgage is a type of loan facility which provides an option to senior citizens to replace their regular income stream... The receipt of such loan would be in the form of a lump sum, fixed monthly payments, etc., in consideration of mortgage of the house property.”
He noted that the house must be self-occupied and free of legal disputes, and banks generally assess the property’s market value while maintaining a margin (typically 20%). The loan is repaid not by the borrower, but recovered by the lender from the sale of the house after the borrower's death or upon breach of conditions.
To qualify for a reverse mortgage, an individual must be at least 60 years old. In case of a joint application, many banks stipulate the spouse must be at least 58 years old. For example, SBI, which currently offers reverse mortgage loans at 10.55%, requires these age thresholds.
“A reverse mortgage loan is a useful financial tool for senior citizens who own a home but lack regular income... they can pledge their self-occupied residential property to a bank or NBFC and receive regular payouts without relinquishing ownership or possession during their lifetime,” said Dinkar Sharma, Company Secretary and Partner at Jotwani Associates.
Sharma illustrated the case of a 70-year-old Delhi resident who uses a Rs 1 crore property to receive Rs 25,000 monthly for 15 years, without repayment during his lifetime. Post his death, the bank sells the house to recover the dues. If the sale proceeds exceed the loan, the remainder goes to legal heirs. Alternatively, heirs can repay the full dues and retain ownership.
This structure offers senior homeowners financial independence while sidestepping immediate capital gains tax. However, when the property is ultimately sold by the bank or heirs, regular capital gains rules apply.
Yet, the product is not without drawbacks. While borrowers retain the right to live in their home until death, most reverse mortgage loans have a fixed tenure of 10–15 years. Those who outlive this period may face uncertainty about continued payouts.
Additionally, reverse mortgage interest rates are significantly higher than regular home loans. For instance, SBI charges 10.55% for reverse mortgage loans, compared to home loans that begin at just 7.5% for creditworthy borrowers.
Thus, while reverse mortgages are effective in bridging retirement cash gaps, they may not suit everyone—especially those intending to pass on their home as inheritance. Families must weigh the financial comfort offered to elders against the cost and complexities involved in reclaiming the property later.