Home >Money >Personal Finance >How much will you benefit from interest waiver on loans? Here are the numbers
Savings for a borrower ranges from few thousands to a maximum of  ₹21,550 for a loan amount of up to  ₹2 crore. Photo: iStock
Savings for a borrower ranges from few thousands to a maximum of 21,550 for a loan amount of up to 2 crore. Photo: iStock

How much will you benefit from interest waiver on loans? Here are the numbers

  • Under the scheme, the borrowers need to pay simple interest on their loan amount for the six month period between March and August
  • Those who have paid their dues on time, will get a cashback from the lenders equal to a sum of 'compound interest paid - simple interest.'

The government on Saturday, announced the waiver of the compound interest on specified loans for six months period. Tax experts are not very happy with the scheme. They believe this scheme is futile as the net savings for a tax payer is too small. The scheme is called, 'Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020)'. Under the scheme, the borrowers need to pay simple interest on their loan amount for the six month period between March and August as against the compound interest. The borrowers who have paid their dues on time, will get a cashback from the lenders equal to a sum of 'compound interest paid - simple interest.'

Let's look at a few calculations. For an instance, on a housing loan of 25 lakh with an assumed interest rate of 8%, the net savings for a tax payer would be 1,157. Similarly, on a housing loan of 2 crore, the tax payer would save paltry sum of 13,400. (See table below for detailed math.)

"Looking at the calculations, we can say that the net savings for an individual taxpayer is very meagre. The scheme hardly provides any relief in the current pandemic," says Pradeep Kasthala, Partner - Tax and Regulatory Services, BDO India.

How much do borrowers save under the Government's compound interest waiver scheme

@Assumed for presentation purpose, @@ for the period of moratorium, # Calculated for an individual taxpayer at maximum marginal rate, na Interest on personal loan is not a deductible expenditure ; Calculations by: Pradeep Kasthala, Partner - Tax and Regulatory Services, BDO India
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@Assumed for presentation purpose, @@ for the period of moratorium, # Calculated for an individual taxpayer at maximum marginal rate, na Interest on personal loan is not a deductible expenditure ; Calculations by: Pradeep Kasthala, Partner - Tax and Regulatory Services, BDO India

The above illustrations show that the savings for a borrower ranges from few thousands to a maximum of 21,550 for a loan amount of up to 2 crore, with assumed interest rates. Any borrower whose aggregate of all loans is more than 2 crore will not be eligible for ex-gratia payment under this scheme. Also, the loan accounts should not be non-performing asset (NPA) as on the date mentioned above.

Specified loan which are eligible under the scheme include MSME loans, education loans, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professionals, consumption loans.

The lenders must credit the difference between compound interest and simple interest to the eligible borrowers by 5 November.



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