Government Subsidised Loan Scheme for Home and Business

The Pradhan Mantri Awas Yojana (PMAY) (URBAN)-Housing for all was a mission launched by the Indian government with the goal of increasing homeownership. It aimed to achieve ‘Housing for All' by 2022.

A home loan subsidy known as the Credit Linked Subsidy Scheme (CLSS) was launched under this mission to provide interest subsidy on home loans by the government to purchase/construct/extension/improvement of a house.

Given the projected growth of urbanization and the resulting housing demand in India, the PMAY scheme caters to the Economically Weaker Section (EWS)/Lower Income Group (LIG) and Middle Income Groups (MIG).

What Exactly is a Credit-Linked Subsidy Scheme (CLSS)?

The Credit Linked Subsidy Scheme (CLSS) is a benefit provided under the Pradhan Mantri home loan subsidy that allows the Economically Weaker Section (EWS), Low Income Group (LIG), and Medium Income Group (MIG) to obtain home loans with lower EMIs thanks to an interest subsidy.

The beneficiary will receive an upfront interest subsidy on the principal amount, resulting in a lower effective home loan and EMI.

The Credit Linked Subsidy Scheme (CLSS) under PMAY makes home loans more affordable by providing a subsidy on the interest component, which reduces the customer's outflow on the home loan.

The amount of the subsidy under the scheme is largely determined by the customer's income category and the size of the property unit being financed. 

CLSS EWS/LIG Scheme under PMAY

LIG and EWS categories are those with annual household incomes greater than 3 lakh but less than 6 lakh.

Beneficiaries from the Economically Weaker Section (EWS) and Lower Income Group (LIG) categories are eligible for a maximum interest subsidy of 6.5%, as long as the unit being built or purchased does not exceed the carpet area requirement of 60 square meters (approximately 645.83 square feet).

The interest subsidy is limited to a loan amount of Rs. 6 lakh.

In 2017, the scheme was expanded to include the Middle Income Groups (MIG). This plan was divided into two sections, MIG 1 and MIG 2.

CLSS MIG 1 Scheme under PMAY

  • The MIG 1 category is defined as having a household income of more than 6 lakh but less than 12 lakh.

  • Beneficiaries in the MIG-1 category are eligible for a maximum interest subsidy of 4%, provided the unit being built or purchased does not exceed the carpet area requirement of 160 square meters (approximately 1,722.23 square feet).

  • This subsidy, however, is limited to a maximum loan amount of 9 lakh over a maximum loan term of 20 years.

CLSS MIG 2 Scheme under PMAY

  • The MIG 2 category is defined as having a household income of more than 12 lakh but less than 18 lakh.

  • Beneficiaries of the MIG-2 category are eligible for a maximum interest subsidy of 3%, provided the unit being built or purchased does not exceed the carpet area requirement of 200 square meters (approximately 2,152.78 square feet).

  • This loan subsidy scheme, however, is limited to a maximum loan amount of 12 lakh over a maximum loan term of 20 years. 

Beneficiary Eligibility Criteria

  • The beneficiary family will consist of the husband, wife, and unmarried children. An adult earning member (regardless of marital status) can be considered a separate household.

  • In the case of a married couple, either spouse or both spouses in joint ownership will be eligible for a single house, subject to the household's income eligibility under the scheme.

  • In the case of EWS/LIG, the Unit should be registered in the name of the female head of the household or in the name of the male head of the household and his wife. When there are no adult female members of the family, the house can be registered in the name of the male member of the household.

  • The beneficiary family should not own a pucca house in India, either in his/her name or in the name of any member of his/her family.

  • Should not have received central assistance from the Government of India under any housing scheme.

How to Apply for a Home Loan Subsidy?

The Ministry of Housing and Urban Development has established a simple yet effective process for people to apply for a home under the scheme.

The form is basically two pages long and requires a person to fill out all of their personal information. Here's a page-by-page breakdown of how each of the pages looks:

  • Page 1: "Enter Aadhaar Number" on page one. The application advances to the next page after the Aadhaar number is verified. The Aadhaar number is used by the government to ensure that an individual applies for the scheme and does not defraud the system.

  • Page 2: Enter the applicant's personal information. He or she must provide information about the state in which they live, the head of the family, their current residential address, and other pertinent information.

The Pradhan Mantri Awas Yojana is divided into two categories:

  • Under the Housing for All by 2022 Scheme, the Economically Weaker Sections (EWS), Middle Income Groups (MIGs), and Lower Income Groups (LIGs) are considered beneficiaries. The annual income cap for EWS is Rs.3 lakh. The maximum annual income for LIG is between Rs.3 lakh and Rs.6 lakh. The annual income cap for MIG is between Rs.6 lakh and Rs.18 lakh. The CLSS component is available to the MIG and LIG categories. EWS, on the other hand, is eligible for assistance in all verticals.

  • Dwellers in Slums – A slum is defined as an area where 60 to 70 households, or approximately 300 people, live in substandard housing. These areas' environments are unsanitary, and they lack proper infrastructure, drinking water, and sanitation facilities. These individuals are eligible to apply for the Pradhan Mantri Awas Yojana's Housing for All by 2022 Scheme.

Government Subsidy Loan for Business (MUDRA)

The small-scale business sector, also known as the Small and Medium Enterprises (SME) sector, is responsible for approximately 40% of India's total Gross Domestic Product (GDP). This sector is important for employment in India, but it faces stiff competition from privately funded businesses.

Recognizing this, the Government of India has proposed a number of loan schemes to help finance the small-scale business sector. SMEs can use these loans to fund their day-to-day operations, expand their business, purchase new equipment, and so on.

Micro Units Development and Refinance Agency Ltd. [MUDRA] is an NBFC that promotes the growth of the country's micro-enterprise sector. MUDRA assists banks and microfinance institutions in refinancing loans to microenterprises with loan requirements of up to ten lakh rupees.

Under the Pradhan Mantri MUDRA Yojana Scheme, MUDRA provides refinance to micro-businesses. The other products are for sector development assistance. MUDRA's bouquet of offerings is depicted below. The offerings are aimed at a wide range of beneficiary segments.

Conclusion

The Pradhan Mantri Awas Yojana and Pradhan Mantri MUDRA Yojana Scheme are the two government loan schemes started to help citizens with a government-subsidized loan for homes and micro-businesses.

Both these schemes aim at making the citizens independent and they have been well received and utilized by citizens.