May 30, 2018

PMAY- A Real Game Changer

Pradhan Mantri Awas Yojana (PMAY): An upfront blessing for all Indians and a game changer in itself. Gone are the days when a Middle Class Indian Man had to think ten times before purchasing his first home. The Government of India has made the environment undeniably conducive for all, so as to not worry at all about the third parameter, 'Makaan', of the age old basic three 'Roti, Kapda Aur Makaan'! All thanks to Pradhan Mantri Awas Yojana (PMAY).

Pradhan Mantri Awas Yojana

Lowest EMIs ever

Who will stay in a rented apartment and dole out unrealistic rental amounts, when one can purchase their own home with several benefits? Well, the answer is No one. Monthly EMIs for home loan of a new property will be coming down by around Rs. 2000 under the PMAY scheme if an annual household income is in the range of Rs. 12 to 18 lakhs. There is an interest subsidy of 4% on housing loans of up to Rs 9 lakh of those with annual income of Rs 12 lakhs and of 3% on housing loans of up to Rs. 12 lakhs of those earning Rs 18 lakhs per year. The scheme is functional now and the subsidies are applicable for loans availed January 2017 onwards.

Detailed explanation

At present, the government is already giving a subsidy of 6.5% on loans of up to Rs 6 lakhs, to those whose household incomes are less that Rs 6 lakhs per annum. This does not mean that the loan amounts are capped. If a person with a household income of Rs. 10 lakhs, borrows Rs. 35 lakhs to buy a house, he or she will still get the mandated 4% interest subsidy on Rs 9 lakhs. Supposing this person borrows the amount at 8.5%, he will then pay an EMI at 4.5% on Rs. 9 lakh plus an EMI at 8.5% on the rest of the amount, Rs 26 lakhs in this case. Owing to the subsidies from the government, his effective EMI will be reduced by Rs 2,117, if the repayment period is 20 years. This subsidy will not be given every month to the lender. Instead, the government will pay around Rs 2,43,894 to the lender upfront, so that the EMI at the contracted rate is reduced due to this amount.

Substantial Tax savings

Even after availing the subsidy benefit under PMAY, one can avail income tax benefits on the home loan too, which can go up to Rs 61,800 if a person's income is within the 30% of the tax bracket and up to Rs 41,200 if the income is in 20% of the tax bracket, as the person is allowed to deduct the interest payment of up to Rs. 2 lakhs from his or her taxable income. But if a person is buying his or her first house at a capital value of less than Rs. 50 lakhs by taking a loan of Rs. 35 lakh or less, the benefit will increase substantially. In this case, a person having household income in the 30% marginal tax bracket will be able to get a maximum annual tax benefit of Rs 77,250, while those whose income is in 20% tax bracket will be able to save up to Rs 51,500 annually. In this case, too, a deduction of Rs 2.50 lakhs is allowed.

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