PM Modi is making things easier for people buying homes for the first time. Govt is giving subsidies

If you are buying a house for the first time, Prime Minister Narendra Modi-led government has some good news for you.

The government is planning to subsidise a part of your home loan if you earn Rs 18 lakh per annum. Presently, this subsidy is available to only those earning up to Rs 6 lakh per annum.

In a bid to give fillip to the real estate market, the government has announced two new subsidy slabs and achieve ‘Housing for All’ dreams by 2022. The slabs will apply to loans with a tenure of up to 20 years, as against the limit of 15 years now.

As per the slabs, if you are earning less than Rs 6 lakh per annum, you will get a subsidy of 6.5 percentage points on a principal component of Rs 6 lakh, regardless of their total loan amount. If they borrowed money at 9% interest, they will pay only 2.5% interest on Rs 6 lakh, and 9% on the remainder.

For people earning up to Rs 12 lakh per annum, they will get interest subsidy of 4 percentage points on a principal component of Rs 9 lakh, and the highest income category of Rs 18 lakh per annum will get a subsidy of 3 percentage points on a principal component of Rs 12 lakh.

The net benefit to all three categories over a 20-year loan tenure is roughly Rs 2.4 lakh (assuming an interest rate of 9%, see table), and the monthly instalment reduces by roughly Rs 2,200. This subsidy benefit under PMAY is in addition to the income tax benefits on home loans, which can go up to Rs 61,800 per annum for someone in the 30% tax bracket.