Home loan borrowers have had a lot to cheer about lately. Banks have cut lending rates by 1-1.2 percentage points over the past year, reducing the monthly EMI (equated monthly instalment) for borrowers. For the middle-income category, the Centre’s credit-linked interest subsidy scheme brings more good tidings.
The scheme, effective from January 1, 2017, offers an upfront interest subsidy of up to ₹2.3-2.35 lakh to eligible borrowers availing themselves of loans to buy ready-to-use or under-construction property. A lowdown on how you can benefit from the scheme.
What’s on offer?
The newly-launched credit-linked subsidy scheme for the middle income group, referred to as CLSS-MIG, covers two income segments — ₹6,00,001 to ₹12 lakh (MIG-I) and ₹12,00,001 to ₹18 lakh (MIG-II) per annum.
Those under the MIG-I category will be offered interest subsidy of 4 per cent for loans up to ₹9 lakh and under MIG-II an interest subsidy of 3 per cent for loans up to₹12 lakh.
The subsidy will be calculated at 9 per cent NPV (net present value) of the interest savings over 20 years or the actual tenure, whichever is lower. The subsidy could work out to a maximum of ₹2.3-2.35 lakh per beneficiary.
How it works
After your loan is approved and sanctioned, the lender submits the claim to one of the Central Nodal Agencies with whom it has signed an MOU. Housing and Urban Development Corporation (HUDCO) and National Housing Bank (NHB) have been identified as the central nodal agencies to channelise this subsidy to the lending institutions.
Normally, as in the case of Gruh Finance, a leading housing finance company in the affordable housing segment, the loan can be disbursed within 15 days, provided the construction of the property is complete and all income documents are available with the applicants.
The subsidy is approved by the nodal agency after verification of eligibility criteria under the CLSS scheme. Once approved, it releases the subsidy amount directly to the lender, which is then credited into the borrower’s account. This will be deducted from the principal loan amount of the borrower, who will pay EMI on the remainder of the principal amount. Let us assume that you have taken a loan of ₹12 lakh (the upper limit for claiming the subsidy). At the normal rate of 8.5 per cent (lowest offered by most lenders), your EMI works out to ₹10,413. If your subsidy is approved under the scheme, your principal amount would reduce by about ₹2.3 lakh. Hence, your EMI would reduce by around ₹2,000 to ₹8,416.
The entire process of credit of subsidy can take about two to three months after the account is fully disbursed.
While your savings can be sizeable, there are a few conditions to note.
Conditions to note
For one, aside from the income eligibility, you must meet the criteria of the loan amount and carpet area to get the benefit. The scheme lays down specific dwelling area — carpet area of up to 90 square meters and 110 square meters for MIG I and MIG II respectively.
Also, if the loan amount exceeds the specified limit — ₹9 lakh for MIG-I and ₹12 lakh MIG-II — the subsidy will be available only up to the threshold limit, beyond which the borrower will have to pay rates applicable under normal circumstances (non-subsidised rates).
For instance, if you take a loan of ₹20 lakh, the subsidy you can get under the scheme will still be capped at ₹2.3 lakh. Your EMI (at home loan rate of 8.5 per cent) will reduce from ₹17,356 to ₹15,359. However, you will not be eligible for the subsidy if you already own a ‘pucca’ (an all weather dwelling unit) house.
For now, the scheme is opened only until December 31, 2017. This implies that the property (if under construction) has to be completed in a year. Else you will not be able to receive the subsidy. To avoid uncertainty, it may be better to go for a ready-to-use property.
Tax implications
Home loan borrowers under the scheme can also get the usual tax benefit. Under Section 80C of the Income Tax Act, maximum deduction of up to ₹1,50,000 is available on the principal amount. Under Section 24, interest that is paid towards the home loan is exempt up to ₹2 lakh. Remember though that you can claim exemption only on the net interest you pay and not on the subsidy component.
