Subsidy under PMAY makes owning a home affordable for millennials

7 MinsSeptember 30, 2019

A house to live in brings about a sense of financial security and pride. That is why when youngsters start earning a living, fulfilling this primary need is a strong desire––particularly because of the growing trend of nuclear families.

Owning a house is not just a financial goal, but an emotional one too. The decision to purchase a home often involves the family too. Besides, at some point in time we also envision passing on our self-earned property to the next generation.

This dream of owning a home is now within the reach of many thanks to the Pradhan Mantri Awas Yojana - Urban, launched in June 2015. Today, there is no need to wait till you have saved up a substantial corpus to be able to afford a home. Even youngsters with few years of work experience can now look forward to buying a home thanks to the loan subsidy offered under PMAY-U. Since there is an interest rate subsidy, the EMI will be lower, thereby reducing the financial burden. Let us see the features under PMAY-U.

pmay home affordable

The eligibility criteria
PMAY-U is a Credit Linked Subsidy Scheme (CLSS), available to Middle Income Group (MIG) and the Economically Weaker Section (EWS)/Lower Income Group (EWS-LIG), wherein an interest subsidy is provided on Home loans for the acquisition and construction of a house.

The credit-linked subsidy is provided for home loans availed for new construction and addition of rooms, kitchen, toilet, etc, to existing dwellings as incremental housing.

However, the primary condition is that the ‘beneficiary family’ should not own a pucca house (an all-weather dwelling unit) anywhere in India at the time of application for a loan. Further, PMAY-U loan is not applicable for properties in rural areas.

Since one of the criteria is that the borrower should not own a home, youngsters have a better chance of being eligible for the scheme.

A ‘beneficiary family’ refers to a husband, wife, unmarried sons and/or unmarried daughters. While applying for a loan, do note that an adult earning member, irrespective of marital status, can be treated as a separate household provided that he/she does not own a pucca house in his/her name in any part of India.

In case of a married couple, either of the spouses or both together in joint ownership are eligible for a single house, subject to income eligibility of the household under the scheme.

For EWS-LIG, the maximum household income should not exceed Rs 6 lakh per annum, while for MIG category, the income range is Rs 6 lakh to Rs 12 lakh for MIG-I, and Rs 12 lakh to Rs 18 lakh for MIG-II. Click here for more details.

The maximum loan amount under PMAY for subsidy calculation is Rs 12 lakh, depending on your economic group. And the interest subsidy is 6.50% for EWS-LIG, while 4.00% and 3.00% respectively for MIG-I and MIG-II. The maximum subsidy amount you can avail is Rs 2.67 lakh as per your economic group.

Remember, the interest subsidy benefit will be upfront on the principal outstanding with reduced Equated Monthly Instalments (EMIs) on your home loan. To reduce your EMI, you can opt for a longer home loan tenure, but for subsidy calculation purpose, the maximum tenure will be considered as 20 years. There is no limit on the amount of loan or cost of the property, however, the subsidy will be limited to the loan amount defined against each category and the additional amount will be at a non-subsidized rate of interest.

[Also Read: Advantages of a Home Loan ]

Documents required to apply for a home loan under PMAY-U

To apply for a home loan under PMAY-U along with the application form, the following documents are required:

- Proof of Address (Aadhaar, Voter ID, Electricity Bill, Telephone Bill, Driving License, etc.)
- Proof of Identity (PAN Card, Aadhaar card, Voter ID, Driving License etc.)

Plus, you need to furnish a self-declaration of not owning a pucca house in the prescribed format.

Tax benefits under PMAY

The principal portion of the home loan EMI is eligible for a deduction under Section 80C of the Income-tax Act, 1961, subject to a maximum limit of Rs. 1.50 lakh per financial year.

Section 24(b) of the Income-tax Act, 1961, allows a deduction for the interest component of the home loan EMI. For a self-occupied property, the deduction under Section 24(b) is restricted to Rs. 2 lakh per financial year.

Further, as a “first-time homebuyer”, you can also claim an additional deduction upto Rs. 50,000 per financial year under Section 80EE provided you fulfil certain conditions, which are:

- The value of the house should be Rs. 50 lakh or less
- The loan taken for this house should be Rs. 35 lakh or less
- The loan should be sanctioned by a financial institution or a Housing Finance Company
- The loan has been sanctioned between 01.04.2016 and 31.03.2017
- As on the date of loan sanction, you should own no other house

Note that the deduction under Section 80EE can be availed only after first exhausting the limit under Section 24(b) for the interest portion.

Additionally, in the Union Budget 2019, a new section 80EEA has been introduced allowing a tax benefit for interest deduction up to Rs 1.50 lakh for home loans in the affordable housing segment taken between April 1, 2019, and March 31, 2020. The other conditions to avail a deduction under this section are:

- The housing loan must be taken from a financial institution such as a bank or a housing finance company for buying a residential house property;
- You should not own any other house on the date of sanction of the loan (you should be a first-time homebuyer);
- Stamp duty value of the house property should be Rs 45 lakh or less;
- The carpet area of the house property should not exceed 60 square metres (645 sq. ft.) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region);
- Carpet area should not exceed 90 square metres (968 sq. ft.) in any other cities or towns;
- Further, this definition will be effective for affordable real estate projects approved on or after 1 September 2019

Plus, an additional condition to avail a deduction under Section 80EEA is that “first-time homebuyer” was not eligible for a deduction under Section 80EE.

To conclude, availing a home loan under PMAY-U offers a host of benefits while you aspire to make your dream of buying your own house come true. Axis Bank has partnered with the Government of India for this scheme.

You can also use Axis Bank's home loan EMI calculator.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.