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Interest subsidy over home loans to poor likely to be rised

Comments(2) Sub Category:Home Loan,Realty News Posted On: Jan 23, 2013

Housing projectsTo support housing for the poor, the Ministry of Housing and Urban Poverty Alleviation has been planning to raise the cap on the interest subsidy scheme from the present Rs 1 lakh to Rs 5 lakh.

The scheme of Interest Subsidy for Housing the Urban Poor was started in the late 2008 in order to help economically weaker sections (EWS) and low-income groups (LIG) in buying or constructing houses. As per the current scheme, EWS and LIG home loan borrowers are entitled to an interest subsidy of 5 percent for home loans up to Rs 1 lakh from banks and housing-finance companies.

The interest subsidy was allowed on the principal amount on an upfront basis which substantially brought down the equated monthly installments (EMIs) payable by a borrower. But still the scheme did not receive good response.

In the current scenario of real estate in India, where the property prices have highly increased, the Ministry has changed the definitions of EWS and LIG. The households which are earning Rs 1 lakh or less a year are considered economically weaker and the ones earning Rs 2 lakh a year are considered as low-income group.

According to the new definition of EWS and LIG, if a home-buyer is allowed to borrow up to five times his/her annual income, then the loan eligibility of the person becomes Rs 5 lakh and Rs 10 lakh for EWS and LIG, respectively. Considering this estimate, the Ministry is looking to enhance the interest subsidy on loans up to Rs 5 lakh.

Instead of providing subsidy on an upfront basis, the Ministry may provide subsidy on an annual basis too. The subsidy will be staggered over a period of the term of the loan, which is usually 15-20 years.

If low-cost housing sector is given infrastructure status, it would help the sector in developing more and more low-cost houses.

The General Manager of National Housing Bank has suggested the Ministry that exempting tax on profit earned from affordable housing projects to developers for a decade would help to boost their interest in developing more affordable projects. He has also suggested that institutions which lend up to Rs 10 lakh should be exempted from tax on the income they earn from lending for affordable projects.

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2 Responses to “Interest subsidy over home loans to poor likely to be rised”

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