Pradhan Mantri Awaas Yojana-Urban (PMAY-U) was launched in 2015 to provide affordable housing to poor and middle-class families. The revamped PMAY-U 2.0 was launched in 2024, and the scope was expanded to construct, purchase, or rent a house in cities.
PMAY-U 2.0 has 4 main verticals.
- Beneficiary led construction (BLC)
- Affordable housing in partnership (AHP)
- Affordable rental housing (ARH)
- Interest subsidy scheme (ISS)
In this post, we focus on the interest subsidy scheme under PMAY 2.0.
What Is the Eligibility for Interest Subsidy Scheme under PMAY-U 2.0?
- The family/household income must not exceed Rs 9 lacs. “Family” includes husband, wife, unmarried sons, and unmarried daughters.
- No family member should own a pucca house in any part of India.
- The property value must not exceed Rs 35 lacs, and the maximum carpet area of the house must not exceed 120 sq. metres.
- Available only for home loans sanctioned or disbursed after September 1, 2024, for purchase/re-purchase/construction of house.
| Income Group | Annual Household Income (Rs) | Interest Subsidy (%) | Maximum Loan Amount Eligible for Subsidy (Rs. ) | Maximum Property Value (Rs. ) | Maximum Carpet Area (sq. m.) | Maximum Subsidy Amount (Rs. ) |
| Economically Weaker Section (EWS) | Up to Rs. 3 lacs | 4% | Rs. 8 lacs | Rs. 35 lacs | 120 | Rs. 1.80 lacs |
| Low-Income Group (LIG) | Rs. 3 lacs – Rs. 6 lacs | 4% | Rs. 8 lacs | Rs. 35 lacs | 120 | Rs. 1.80 lacs |
| Middle-Income Group (MIG) | Rs. 6 lacs – Rs. 9 lacs | 4% | Rs. 8 lacs | Rs. 35 lacs | 120 | Rs. 1.80 lacs |
Under the original PMAY scheme, interest subsidy was available for families with household income up to Rs 18 lacs. The interest subsidy rates were also different and ranged from 3% to 6.5%. The original PMAY scheme (launched in 2015) gradually rolled back and was completely withdrawn in 2022. The revamped PMAY 2.0 was rolled out in 2024 and the housing loans sanctioned on or after September 1, 2024, are eligible under the scheme.
There is no limit on the loan amount to be eligible for the interest subsidy scheme (ISS) under PMAY 2.0. However, the Government provides interest subsidy only for loan amount up to Rs 8 lacs. For any excess loan amount, there shall be no interest subsidy, and the borrower must pay the regular interest rate.
However, there are caps on the cost of house (maximum Rs 35 lacs) and the size of the house (capped at 120 sq. metres or 1,291 sq. feet). If you breach these limits, you won’t be eligible for the interest subsidy under PMAY 2.0.
How Is the Interest Subsidy Calculated under PMAY 2.0 and Applied?
- Calculate the interest portion of the EMI on a loan of Rs 8 lacs at 4% p.a. for 12 years. 8 lacs because this is the maximum loan amount eligible for subsidy. 4% is the interest subsidy. And 12 years is the loan tenure used to subsidy calculation. Note: If the loan amount is less than Rs 8 lacs OR the loan tenure is lower than Rs 8 12 years, the subsidy will be calculated on the actual loan amount and actual loan tenure.
- Discount the interest savings at 8.5% p.a. to calculate NPV (Net present value)
- Unless the home loan is less than Rs 8 lacs (or loan tenure lower than 12 years), the NPV would come to Rs 1.5 lacs. For an NPV of Rs 1.5 lacs, you will get subsidy of Rs 1.8 lacs. Why? Because of how subsidy is credited.
- The subsidy is credited to the loan account of the borrower in 5 equal yearly installments. Under the original PMAY scheme, the subsidy was deposited at one go.
I ran the numbers. The total interest paid over 12 years (for Rs 8 lacs loan at 4%) is 2.08 lacs. The Net present value (NPV) of such interest paid (discounted at 8.5% p.a.) is Rs 1.5 lacs. Under the original PMAY scheme, this NPV was the subsidy and settled in one go. Easy and done.
Now, under PMAY 2.0 guidelines, the subsidy must be released in 5 equal annual installments. Further it is mentioned that the maximum actual release of subsidy will be Rs 1.8 lacs. And the maximum NPV of such subsidy amount will be Rs 1.5 lacs.
These 2 numbers may sound confusing, but this is happening because of the release of subsidy in 5 installments.
Let’s understand with the help of an example. Let’s say the Government releases 1.8 lacs over 5 annual installments. 36,000 every year. In 1st, 13th, 25th, 37th, and 49th months. If we discount this cashflow by 8.5% p.a., the NPV is ~1.52 lacs. A few months of delay and the NPV will be Rs 1.5 lacs. So, in a way, 1.8 lacs over 5 years is equal to NPV of Rs 1.5 lacs.
Until the subsidy is released to the bank (on behalf of the borrower), the bank calculates the EMI based on the full loan amount. As the subsidy gets credited to the loan account, the bank automatically adjusts the EMI downward. Hence, everything else being the same, the EMI will go down with each subsidy credit.
The interest subsidy calculator is also available on PMAY website.
Other important points
- The subsidy will be provided just once for a house. If the house for which the subsidy has already been taken is sold, the purchaser won’t get any subsidy on the house, even if all the conditions are satisfied. The banks must ensure this.
- The family members cannot split the loan amount and get double subsidy benefit. If the two or more family members take a combined or separate loan on the same property, they will be treated as same family for calculation of family income and benefit.
- You can transfer your loan to another bank, but you won’t be eligible to get the interest subsidy again (if you have already availed once).
- The subsidy will be released only if at least 50% of the principal is outstanding at the time of release of subsidy.
- For benefit under the interest subsidy scheme, the applicants must register their demand through a unified web-portal.