Move to relax ECB norms for PMAY expected to benefit home buyers and developers
Update on September 17, 2019: Finance minister Nirmala Sitharaman on September 14, 2019, rolled out some good news for affordable home builders and buyers. Government funds to the tune of Rs 10,000 crores will be made available for affordable and mid-segment projects that are battling a liquidity crunch. However, she also said that the funds will be extended to those projects that do not have any pending cases under the National Company Law Tribunal (NCLT) or Non Performing Assets (NPA) cases. This will act as a last-mile funding for housing projects that are stuck.
Apart from this, guidelines for External Commercial Borrowings (ECB) will also be relaxed to help PMAY homebuyers. This will also greatly help builders who are looking at funds from overseas investors. All of this will be done in consultation with the Reserve Bank of India.
Ujjawala, Ayushman Bharat schemes to be extended to PMAY (U) beneficiaries
Update on August 30, 2019: The Union Housing and Urban Affairs Ministry, on August 29, 2019, launched the ‘Angikaar campaign’, a move aimed at bringing the beneficiaries of the PMAY (Urban) into the fold of other central schemes such as Ujjawala and Ayushman Bharat. Union Housing and Urban Affairs Minister Hardeep Singh Puri said the convergence would especially focus on Ujjwala for gas connection and Ayushman Bharat for health insurance, to the beneficiaries of Pradhan Mantri Awas Yojana (U). HUA secretary Durga Shanker Mishra said the campaign will officially be rolled out in all cities with PMAY (U), on October 2, 2019 and culminate on December 10.
Update on July 5, 2019: In the Union Budget 2019-20, finance minister Nirmala Sitharaman announced that over 81 lakh houses have been sanctioned, out of which construction has been completed for 26 lakh houses under the PMAY Urban. Similarly, 1.5 crore rural homes have been completed over 5 years under the PMAY-G. In the second phase 1.95 crore houses will be built by 2022.
An additional deduction of Rs 1.5 lakhs on interest, for loans borrowed upto March 31, 2020, for affordable houses (purchase of house up to Rs 45 lakhs), will also be given.
“In order to align the definition of affordable housing in the Income-Tax Act with the GST Act, it is proposed to increase the limit of carpet area from 30 sq m to 60 sq m in metropolitan regions and from 60 sq m to 90 sq m in non-metropolitan regions. It is also proposed to provide the limit on cost of the house at Rs 45 lakhs, in line with the definition in the GST Act,” the Budget statement said.
The government has been trying to support the cause of housing, through its ‘Housing for All by 2022’ mission. Under this mission, the government has come out with two schemes, to partly fund the interest of the borrowers in urban areas. The first scheme, which is very liberal in terms of the interest rate subsidy, is applicable to the Economically Weaker Sections (EWS) and those under the Low-Income Group (LIG). The other scheme covers the Middle-Income Group (MIG). Let us discuss the first scheme in detail.
Eligibility criteria in Pradhan Mantri Awas Yojana, for availing of the subsidy on interest on home loans
The eligible category is divided into two parts – the first category is EWS and the other category is LIG. This scheme is available for acquiring or constructing residential units in the 4,041 statutory towns as per the 2011 census and 274 additional towns, which have separately been notified by the state government. The details of such towns can be downloaded from http://nhb.org.in/government-scheme/pradhan-mantri-awas-yojana-credit-linked-subsidy-scheme/statutory-towns/
In order to qualify for the subsidy, the individual or spouse should not own an all-weather pucca house, either in his/her name or in the name of any unmarried child of the couple, in any part of India. In addition to acquisition or construction of a new house, a borrower can also avail of this facility for extension of his existing house, whether self-acquired or inherited. If the borrower wants to avail of the benefits, for extension or enhancement of his existing house for addition of rooms, kitchen, toilet, etc., then, the condition of pre-existence of a pucca house, shall not apply.
Moreover, the income for the purpose of qualifying under the scheme, is the income of the whole family as a unit and not of the head of the family only. For availing of the subsidy, the borrower has to submit a self-declaration, about the income and title of the property to be acquired, to the lender. As the government does not underwrite any part of the loan given under this scheme, lenders will have to follow their own due diligence process, for income and title of the property. The lender has to monitor the construction of the dwelling units financed under the scheme, like approvals for the building design, infrastructure facilities, the quality of construction, etc. The lender also has to verify the expenditure incurred up to different stages of construction, through site visits, etc.
So, the government will only provide the subsidy for such loans but the lender has to take all the other precautions, which it takes for any other regular home loan, as any non-payment or the loan becoming a non-performing asset, will be on the bank’s books.
The house which qualifies for the interest subsidy, can either be a single unit or a unit under any multistoreyed building. The eligible unit needs to have basic facilities and infrastructure like toilet, water, sewerage, road, electricity, etc. The area of the house, will only include the area on which a carpet can be laid, meaning that it will not include the walls in the house or the outer wall of the house.
The house to be constructed or acquired under this scheme, should be in the name of the female head of the household or alternatively, in the joint name of the male head of the household and his wife. However, if there is no adult female member in the family, the house can be acquired in the name of the male member of the family.
The income eligibility and rate of interest subsidy available and the exact quantum of benefits under PM Awas Yojana is tabulated as under:
|Annual family income||Upto Rs 3 lakhs||Above Rs 3 lakhs and upto Rs 6 lakhs|
|House area||Carpet area upto 30 sq metres||Carpet area upto 60 sq metres|
|Rate of interest subsidy||6.50%||6.50%|
|Maximum loan eligible for subsidy||Rs 6 lakhs||Rs 6 lakhs|
|Maximum loan tenure||20 years||20 years|
The maximum subsidy under this scheme can be Rs 2,67,280. The amount of subsidy will be reduced proportionately, if the loan amount is lower than Rs 6 lakhs. The subsidy benefit is only available for loans that are disbursed on or after June 17, 2015.
How is the subsidy under Pradhan Mantri Yojana given
The subsidy under this scheme is given as upfront relief, in the form of a reduction in the overall loan liability.
The present value of the interest subsidy is calculated at 6.50%, for a maximum tenure period of 20 years, on the maximum loan amount of Rs 6 lakhs. The future outflow of interest at 6.50% is discounted at 9% and the present value so arrived, is reduced from the actual loan amount taken by the borrower.
The amount of original loan reduced by the net present value of the subsidy benefit, is the liability of the borrower and the EMI is computed accordingly, based on the agreed rate of interest.
In case the borrower borrows more than Rs 6 lakhs, the amount of subsidy shall be restricted to an amount of Rs 6 lakhs and the additional loan shall be charged regular interest rates of the bank. Although the lender has to give the credit for the subsidy to the borrower immediately, the lender gets the amount of interest subsidy, only after the claim made by it is processed by the nodal agency with which it is registered. This is the main reason why lenders are not keen to promote this beneficial scheme of the government.
Under the scheme, the lenders have to register themselves with one of the nodal agencies – NHB or HUDCO. The lender institutions include various entities engaged in the business of providing home finance, such as scheduled banks, housing finance companies, regional rural banks (RRBs), state cooperative banks and urban cooperative banks. It will also include small finance banks and NBFC- micro finance institutions. Additionally, the government can notify other institutions, to be eligible to provide finance under this scheme.
Processing fee for loan applications, under PM Awas Yojana
Under the scheme, the lender is not allowed to recover any processing fee from the borrower. So, in addition to reimbursement of the subsidy amount, the lender will also be given a lump sum of Rs 3,000, to cover their cost of processing the loan application for an amount upto Rs 6 lakhs. For additional loan beyond Rs 6 lakhs, the lenders are allowed to recover normal processing fees.
Balance transfer, under PMAY
Although the borrower is allowed to shift his existing home loan, under which the subsidy benefit has already been availed, the borrower shall not be entitled to claim the subsidy again on such balance transfer. Moreover, you cannot avail the benefit under this scheme, by transferring your existing home loan after the notified date, as the subsidy is only available to the borrower when he first acquires or constructs the house. The house to be purchased, need not be new. It can also be a resale house from another owner or a builder.
(The author is a tax and investment expert, with 35 years’ experience)
PMAY news updates
Update on July 4, 2019:
Demand made in RS to increase size of ‘pucca’ homes under PMAY
A demand was made in the Rajya Sabha, on July 3, 2019, to increase the size of ‘pucca’ homes being constructed under the Pradhan Mantri Awas Yojana (PMAY). The demand was made by BJP MP from Gujarat, CK Gohel. To this, the government said the scheme was being implemented in consultation with state governments. “Under the scheme, the prescribed size is 30 sq metre pucca home, with a toilet and kitchen, etc. If there are suggestions, the state government can provide,” housing and urban affairs minister Hardeep Singh Puri said, during the Question Hour in the upper house.
On another query raised by NCP MP from Maharashtra Majeed Memon, on the number of slums constructed under the PMAY in Mumbai, the minister said details will be conveyed to him separately. He said 83 lakh slums have been constructed so far under the scheme, against the target of 1 crore. The centre has figures state-wise and not city-wise.
(With inputs from PTI)
Update on July 1, 2019:
No proposal to increase amount provided under PMAY: Rural development minister
The government has no proposal to increase the amount provided under the Pradhan Mantri Awas Yojana (PMAY), minister for rural development Narendra Singh Tomar, informed the Rajya Sabha, on June 28, 2019. “We have recently restructured this scheme and we are providing upto Rs 1.5 lakhs for construction of each house. There is no proposal to increase the amount as of now,” the minister told the house.
(With inputs from PTI)
Update on June 28, 2019:
Persons with disabilities to get priority under PMAY: Maharashtra CM
Maharashtra chief minister Devendra Fadnavis, on June 27, 2019, said his government was committed to the welfare of divyangs or persons with disabilities and assured they will be given priority, in the allocation of houses under the Pradhan Mantri Awas Yojana (PMAY). He said, “We want divyangs to get homes on a priority basis. We are working in this direction.”
The state government allocated Rs 7,197 crores to the housing department, in its budget presented on June 19, 2019.
(With inputs from PTI)
Update on February 26, 2019: The centre has approved the construction of 5.6 lakh more houses under the Pradhan Mantri Awas Yojana (Urban) scheme, with Uttar Pradesh being sanctioned 1,79,215 houses, followed by Andhra Pradesh (1,10,618), Maharashtra (1,01,220) and Karnataka (48,729), among others. The cumulative number of houses sanctioned under the PMAY (U) now is 79,04,674.
The statement stated that a total of 1,243 projects with a project cost of Rs 33,873 crores, with central assistance of Rs 8,404 crores, had been approved in the meeting. Fifteen lakh houses have so far been completed. More than 12 lakh houses are currently being constructed.
Update on February 6, 2019: Union housing and urban affairs minister Hardeep Singh Puri has revealed that since the Credit Linked Subsidy Scheme (CLSS) was launched in June 2015 under the Pradhan Mantri Awas Yojana (Urban), Rs 8,378.15 crores have been disbursed to 3,77,022 home buyers. According to official data, Gujarat has topped the list of subsidies being disbursed under the CLSS, at Rs 2,683.63 crores, followed by Maharashtra (Rs 2,356.44 crores), Uttar Pradesh (Rs 494.20 crores) and Madhya Pradesh (Rs 461.20 crores).
Update on February 5, 2019: In the interim budget presented on February 1, 2019, the Housing and Urban Affairs Ministry’s budgetary provisions have been pegged at Rs 48,000 crores, a hike of 17 per cent over 2018-19. The ministry’s ambitious The Pradhan Mantri Awas Yojana (Urban) scheme, has been increased by five per cent, to Rs 6,853.26 crores, as against Rs 6,505 crores in union budget 2018-19.
Update on January 14, 2019: Union minister Hardeep Singh Puri has launched the Global Housing Technology Challenge (GHTC) among stakeholders, a move aimed at introducing the best technologies that seek to construct houses in a shorter period of time, with a lower cost.
Update on December 31, 2018: The Centre has extended the Credit Link Subsidy Scheme (CLSS) on home loans for the middle income group (MIG) under the Pradhan Mantri Awas Yojana (Urban) till March 2020, union housing and urban affairs minister Hardeep Singh Puri announced, on December 31, 2018. The CLSS for the MIG, was originally launched for 12 months till December 31, 2017. Under the CLSS, the MIG beneficiaries with an annual income of above Rs six lakhs and up to Rs 12 lakhs, would get an interest subsidy of four per cent on a 20-year loan component of Rs nine lakhs. Those with an annual income exceeding Rs 12 lakhs and up to Rs 18 lakhs, would get interest subsidy of three per cent.
(With inputs from PTI)