A home for every citizen

The interest subsidy for EWS and LIG groups under the Credit Linked Subsidy Scheme is expected to ease the housing shortage in the country. By R.P. Deshpande


he Credit Linked Subsidy Scheme (CLSS) announced under ‘Pradhan Mantri Awas Yojana – Housing for All (Urban)’, is a real boon for the urban poor in realising their dream of owning a home. The scheme is available in more than 4,000 urban places across the country.

Under the scheme, an interest subsidy at the rate of 6.5% per annum is available for eligible applicants up to 15-year tenure home loans. Considering the present interest rate of 9.5% (apx.) on home loans, if 6.5% interest subsidy is applied, the effective interest reduces to 3%.

NHB (National Housing Bank) and HUDCO (Housing and Urban Development Corporation) have been designated as nodal agencies to implement the scheme through banks, HFCs (Housing Finance Companies) and other recognised lending institutions. The subsidy scheme is applicable for eligible home loans sanctioned or to be sanctioned between June 16, 2015 and March 31, 2022.

The Net Present Value (NPV) of the interest subsidy will be calculated at a discount rate of 9% and credited upfront to the loan account of beneficiaries, thus reducing the loan amount, resulting in lower EMIs (Equated Monthly Instalments). The subsidy scheme is available only for those families who do not own any house anywhere in the country.

The house needs to be purchased/acquired in the name of a female adult and it can be in the joint names of wife and husband. If the household has no major female member, exemption is available for male member to be the owner of the property.

The credit-linked subsidy will be limited to loan amounts up to Rs. 6 lakh. If the applicant has taken a higher loan amount, for such additional amounts subsidy will not be made available.

The subsidy would be available for housing loans taken for new house acquisition or construction and for extending a house by adding rooms, kitchen, toilet, etc. The house carpet area is limited to 30 square metres (323 sq. ft.) and 60 square metres (645 sq. ft.) for EWS and LIG respectively. However, the beneficiary can build a house of larger area and take a higher loan amount but interest subsidy would be limited to Rs. 6 lakh only.

All home loans defined under priority sector lending are eligible for the scheme.

All credit norms applicable to normal home loans shall be applicable as such and applicants will have to produce KYC (Know Your Customer) documents to establish identity, age and residence proof.

Aadhar Card and PAN (wherever applicable) are mandatory. Banks and HFCs will also seek documents to establish regular income to satisfy repayment capacity of borrowers.


The scheme is available in more than 4,000 designated towns across the country. The list of towns is available on the web-link: http://www.nhb.org.in/Urban_Housing/4041%20statutory%20Towns.xlsx

The scheme is available at 187 recognised lending institutions including public sector and private banks, housing finance companies, RRBs (Regional Rural Banks), cooperative banks etc. The list is available on http://www.mhupa.gov.in/writereaddata/PLI31082016.pdf

The scheme is available for Economically Weaker Section (EWS) households having income up to Rs. 3 lakh per annum and Low Income Group (LIG) households having income between Rs.3 lakh and Rs. 6 lakh per annum.

The 6.5% subsidy will be paid by calculating the Net Present Value of the total subsidy payable over the tenure of loan (limited to 15 years) by discounting at 9% pa.

In other words, instead of paying subsidy every month, the entire subsidy payable over the tenure of the loan is paid upfront by calculating the present value of total subsidy payable. It is assumed that the value of money reduces by 9% every year.

It is possible to calculate the present value of subsidy payable over future periods, by mathematical formula or more easily using the Excel spreadsheet. For the convenience of public, NPV calculator is made available on: http://www.nhb.org.in/Urban_Housing/emicalculator.php OR http://pmaymis.gov.in/EMI_Calculator.aspx

Since independence, there have been a number of social schemes mooted by the Central and State governments, with an aim to help poor urban households in acquiring a decent dwelling, but most of them have failed due to cumbersome procedures involved and other factors.

No intermediaries

In the CLSS, for administrative ease and effective monitoring of the scheme, the subsidy is paid into the account of beneficiary. Since there are no intermediaries involved, the entire benefits are expected to reach needy households.

The scheme is expected to help millions of urban poor own a house, and help the governments in reducing housing shortage in the country. CLSS indirectly catalyses the construction sector.

The Prime Minister recently announced that the CLSS would be extended to lower middle class citizens, who will get 4% subsidy on home loans up to Rs. 9 lakh and 3% subsidy for loans up to Rs. 12 lakh.