If you fall under the middle-income category and are actively looking to buy a house, the Pradhan Mantri Awas Yojana – Urban or PMAY (U) is something you should familiarize yourself with. In this article we will go into the details of who can benefit from this scheme and how much interest subsidy they can obtain when availing a home loan.
The Credit Linked Subsidy Scheme for Middle Income Group or CLSS for MIG I and MIG II implemented in 2017 was initially approved to stay in effect till March 2020, but the government later extended it till March 2021.
When can one avail of this?
You can avail of the PMAY (U) benefits when you take a loan in order to:
- buy a house, be it from a builder or developer.
- construct a house.
- repurchase a house through the secondary market.
- make enhancements on your existing house, i.e. adding an additional room, kitchen, etc.
Note: No processing fee will be charged by a lender on eligible loan amount under this scheme. The lender may charge the regular processing fee for the loan amount exceeding the amount eligible for PMAY benefit.
But who is eligible?
The Middle Income Category (MIG I) includes households with annual income between Rs.6,00,001 and Rs.12,00,000.
Subsidy: Borrowers under this income category will be allowed 4% interest subsidy on a loan amount of up to Rs.9 lakhs.
The Middle Income Category (MIG II) covers households with income between Rs.12,00,001 and Rs.18,00,000 per annum.
Subsidy: People eligible in this case will get a subsidy of 3% on a loan amount of up to Rs.12 lakhs.
|PMAY – U : Subsidy on Home Loan Interest for Middle Income Groups|
|Features||MIG I||MIG II|
|Annnual Income||Rs. 6-12 lakhs||Rs.12-18 lakhs|
|Subsidy on Interest||4%||3%|
|Eligible Loan Amount||Rs.9 lakhs||Rs.12 lakhs|
|Loan Tenure up to||20 yrs||20 yrs|
|Carpet area||160 sq metres||200 sq metres|
|NVP subsidy||Rs.2.35 lakhs||Rs.2.30 lakhs|
Note: The loan amount borrowed beyond the loan amount eligible for subsidy will be lent at a non-subsidized rate. Check out how much loan you’re eligible for with Fincity’s Loan Calculator.
The government’s mission behind the introduction of this scheme is to provide housing for everyone. The rules clearly state that the beneficiary family, consisting of husband, wife, unmarried son(s) or unmarried daughters, should not own a pucca (all weather dwelling unit) house or have availed of assistance of any housing scheme from the Govt of India. It also underlines that an adult earning member of the household can be treated as a separate household and avail of benefits on condition that they do not own a pucca house anywhere in India.
This means that a married couple will be treated as a separate household and will be eligible to avail of PMAY benefits on a single house owned by either or purchased in joint ownership, provided that none of them own a house already. An unmarried adult child who’s earning can avail of these benefits as well even if they live with their parents or stay on rent.
Unit Area under PMAY:
As stated above, under CLSS, for MIG I, subsidy on loan interest is available for houses with a maximum carpet area of 160 sq mts while the limit for MIG II is 200 sq mts. Carpet area includes only the actual area where you can lay the carpet and not the thickness of inner/outer walls. When you include the area of the balcony, common area and outer walls what you get is the super built-up area.
Which banks/financial companies offer these?
Primary lending institutions such as banks, housing financial companies, regional rural banks, urban cooperative banks, state cooperative banks, non-banking financial companies, etc.
How does it work?
Let’s say someone in falling under the MIG I category wants to avail a loan of Rs.40 lakhs. They pay the initial down payment of 20% i.e. Rs.8 lakhs and take the remaining Rs.32 lakhs as home loan. They are eligible for an interest subsidy of 4% till Rs.9 lakhs, meaning they will have to pay full interest as per the agreement with the lender on Rs.23 lakhs.
Documents Required for PMAY:
|Application form||To be duly filled|
|Identity Proof (PAN Card+ any one document):||Voter Card Aadhar Card Valid Passport Driving License Photo Credit Card Photo Identity card issued by Govt. body Letter from recognized public authority or public servant verifying the identity of the customer with photograph (not more than 30 days old)|
|Address Proof (any one document):||Voter Card Aadhar Card Valid Passport Letter from a recognized public authority or public servant verifying the identity and residence of the customer Latest Utility bill Rent agreement on stamp Paper Bank Statements reflecting address of borrowers of any commercial nationalized bank Credit Card Statement not older than 3 months Life Insurance Policy Residence address Certificate /letter by employer on company letterhead Copy of Sale Deed of the property (residence), if owned Municipal or property tax receipt Post office saving bank account statement Pension or family pension payment orders (PPOs) issued to retired employees by Govt. departments or Public Sector Undertakings, if they contain the address Letter of allotment of accommodation from employer issued by State or Central Govt. departments, statutory or regulatory bodies, and public sector undertakings, scheduled commercial banks, financial institutions, and listed companies. Similarly, leave and license agreements with such employers allotting official accommodation Documents issued by Govt. departments of foreign jurisdiction and letter issued by Foreign Embassy or Mission in India|
|Proof of Income (all documents mentioned):||Salaried: Last 2 months’ salary slip Last 6 months’ bank statement of salaried account Latest Form 16 / ITR Self-Employed: Income Tax Returns along with computation for last 2 financials years Balance Sheet and Profit & Loss account along with all annexures (duly CA certified and audited if applicable) Last six months current account statement of the business entity and saving account statement of individual|
|Other Documents:||Salaried: Documents related to running loans along with 6 months repayment bank statements Self-Employed: Documents related to running loans along with 6 months repayment bank statements Latest List of shareholding pattern (duly CA/CS certified) MOA (for private Limited companies) Partnership deed (for partnership firms)|
|Property Documents (all documents mentioned):||Copy of complete chain documents of the property (as applicable) Copy of Agreement to Sell (if executed) Copy of the Allotment Letter / Buyer Agreement (if applicable) Copy of Receipt/(s) of payment/(s) made to the developer (if applicable)|
NPV and its implications
The actual subsidy amount on interest is actually the NPV (Net Present Value) of the interest subsidy amount. Let’s assume on a home loan of Rs.9 lakhs, the NPV of 4% comes up to Rs.2.35 lakhs. In this case, an amount of 2.35 lakhs will be deducted from the total amount and you’ll have to pay EMI (Equated Monthly Installments) on the balance of Rs.6.65 lakhs as per the lender’s interest rate.
The interest subsidy amount will be credited in your loan account upfront resulting in deduction in effective housing loan i.e. from the principal loan amount, and subsequently resulting in lower EMI.
Note: The discount rate for NPV is 9%.
Another point to remember is – to avail of the PMAY benefit, the builder has to complete the project within 5 years. We suggest that you thoroughly research all the conditions applicable on the affordable housing segment along with the benefits that come with it before taking the leap. And while you’re at it, feel free to connect with a Fincity financial expert at firstname.lastname@example.org to guide you along the best path for you!
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