How does housing subsidy benefit you?

If you were planning to buy a house but held back in view of the ongoing covid-19 crisis, the government is willing to give a helping hand. At a press conference held last week, finance minister Nirmala Sitharaman announced the extension of the government’s housing subsidy scheme for households that fall under the middle-income group (MIG).

The government has decided to extend the benefit of interest rate subsidy on home loans under the Credit Linked Subsidy Scheme (CLSS) for households with annual incomes between ₹6 lakh and ₹18 lakh till 31 March 2021. The scheme was introduced in May 2017 and ended on 31 March 2020.

According to the government estimates, the subsidy scheme will give a ₹70,000 crore boost to the housing sector. “This will help push demand for affordable housing,” said Anuj Puri, chairman, ANAROCK Property Consultants Pvt. Ltd, a real estate consultancy. According to data from ANAROCK, currently, there are 1.56 million under-construction units across the top seven cities. Of these, nearly 39% are in the affordable segment priced below ₹40 lakh.

“In the last couple of years, the subsidy of up to ₹2.67 lakh under CLSS has been one of the biggest catalysts for homebuyers, particularly for affordable housing in tier II and tier III cities. With property prices remaining stable, the extension will prompt more people, particularly those in the mid-income group, to buy homes,” said Pradeep Aggarwal, founder and chairman, Signature Global, an NCR-based developer with maximum projects in affordable housing segment.

Here are the details of the scheme.

Details of the scheme

CLSS, which comes under the Pradhan Mantri Awas Yojana (PMAY) for MIG households, was announced by Prime Minister Narendra Modi on 31 December 2016. Under CLSS, middle-income beneficiaries with annual household income between ₹6 lakh and ₹12 lakh (categorized as MIG I) get an interest subsidy of 4% on a 20-year loan. Note that the subsidy will be available only on a loan amount of ₹9 lakh even if the total loan amount is higher than that. Those with annual household incomes of more than ₹12 lakh and up to ₹18 lakh (categorized as MIG II) get interest subsidy of 3% on a 20-year loan. In this case, you can avail of the subsidy up to a loan amount of ₹12 lakh even if the total loan amount is higher.

Additional loans beyond the specified limit, if any, are at non-subsidized rates.

Under the scheme, the annual family income comprises incomes earned by the husband, wife, unmarried sons and unmarried daughters. Also, the scheme is applicable only to those families where none of the family members own a pucca house (an all-weather dwelling unit) in their names in any part of India.

CLSS for MIG I is available for acquiring or constructing a house (including re-purchase) with a carpet area of up to 160 square metres. For MIG II, this limit is 200 sq.m. The house must have basic infrastructure such as water, sanitation, sewerage and access to road and electricity.

the benefit

You can calculate how much subsidy you are eligible for at http://www.pmaymis.gov.in/EMI_Calculator.aspx. Remember that CLSS subsidy amount varies by the category of borrower, amount and tenure of the loan and the interest rate.

Those in the economically weaker section (EWS) and low-income group (LIG) categories can get a maximum subsidy of ₹2.67 lakh, whereas for MIG I and MIG II categories, the subsidy limit is ₹2.35 lakh and ₹2.30 lakh, respectively.

The best part of the scheme is that the amount of interest subsidy gets credited upfront to the loan account of the borrower, reducing the outstanding loan amount and thereby bringing down the equated monthly instalments (EMIs). For instance, if your income is between ₹12 lakh and ₹18 lakh and you take a home loan of ₹12 lakh, the subsidy amount will work out to approximately ₹2.30 lakh. This amount ( ₹2.30 lakh) will be reduced upfront and, therefore, the loan amount will come down from ₹12 lakh to ₹9.7 lakh. Consequently, your EMI will reduce in accordance to the outstanding loan amount of ₹9.7 lakh.

How to get it

To avail the benefit of the subsidy scheme, you can seek home loans from banks, housing finance companies and other lending institutions for acquisition or construction of a house. You can even avail of the benefit if you plan to buy a property on resale.

To apply for the subsidy you need to approach the lending institution from which you are planning to or have taken the loan (existing loan should have been taken after the announcement of the scheme). Fill up the required application form and provide necessary documents such as Aadhaar, Permanent Account Number, along with a self-certificate or affidavit as proof of income. Once you apply, lending institutions do the due diligence regarding your eligibility; once satisfied, they send the subsidy claim to a central nodal agency (CNA). Once the CNA approves the subsidy claim, it is transferred to the lending institution and gets adjusted against the outstanding loan. You can track the application status at pmayuclap.gov.in. Typically, it takes three to six months for the subsidy to get credited in your account.