After the Union Budget 2017, a sense of relief is seen among the home buyers, especially those who are purchasing their first home. The government has announced new subsidy slabs and associated interest rate on home loans according to an individual’s annual earning.
Union Budget 2017 has made some good provisions to boost up the realty market. The government has announced two new subsidy slabs targeted to incentivise the real estate market and achieve PM Modi’s ambitious plan – housing for all by 2022. This will help boost up the existing scenario of property and real estate market after the demonetisation saga.
The slabs will apply to loans with a tenure of up to 20 years, as against the limit of 15 years now. Under the purview of the latest update, an individual earning up to Rs 18 Lakh per annum will be benefitted by Rs 2.4 Lakh as a part of the home loan interest will be subsidised by government. Unlike the previous provision, the subsidy will be applicable to all who are also earning beyond the existing limit of 6 Lakhs per annum. In fact the subsidy rates have been made available to different earning cadres according to their annual earning limits. For better understanding the subsidy slabs have been listed below.
- Earning up to Rs. 6 Lakh
Individuals earning less than Rs 6 Lakh are eligible for a subsidy of 6.5 percentage points on a principal component of Rs 6 Lakh. This will be unaffected by the total amount of loan taken for purchase of the property.
For example, if the individual has borrowed money at 9% interest, then he/she will pay interest at a rate of 2.5% on Rs 6 Lakh and interest on the rest of the amount will be charged at a rate of 9%.
- Earning up to Rs. 12 Lakh
For individuals falling under the next slab, i.e. people with annual income of less than Rs 12 Lakh, will be eligible for a subsidy of 4% points on the principal component of Rs 9 lakh.
For example, if the individual has borrowed money at 9% interest, then he/she will pay interest at a rate of 4% on Rs 12 Lakh and interest on the rest of the amount will be charged at a rate of 9%.
- Earning up to 18 Lakh
The last and the highest income slab is applicable to individuals earning up to Rs 18 Lakh per annum. Such individuals are eligible for a subsidy of 3% points on a principal component of Rs 12 Lakh.
For example, if the individual has borrowed money at 9% interest, then he/she will pay interest at a rate of 3% on Rs 12 Lakh and interest on the rest of the amount will be charged at a rate of 9%.
Under this calculation, the net benefit is nearly Rs 2.4 Lakh for all the three categories over a tenure of 20-year loan, assuming that the prevailing rate of interest is 9%. The difference of the monthly instalment will be reduced by about Rs 2,200.
In addition, the declared subsidy benefit under the PMAY is on and above the income tax benefits on home loans. The corresponding benefits will be applied depending upon the existing slab applicable for income tax calculation. This means that for an individual falling under the 30% tax bracket, the benefit will be up to Rs 61,800 per annum.