First time home buyers, especially those of the lower income group (LIG) and middle income group (MIG), often face difficulty in funding their dream home or securing a loan for the same. In order that the first time home buyer benefits, the Government of India introduced the Pradhan Mantri Awas Yojana (PMAY) for economically weaker sections (EWS) in 2015.
Under the scheme, families belonging to EWS (LIG and MIG) who do not already have a home anywhere in the country can apply for a Credit Linked Subsidy Scheme (CLSS) and get an interest subsidy of 3 to 6.5% depending on their income group.
Those below the Rs. 6 lakh per annum income slab get a subsidy of 6.5% on a principal component of Rs. 6 lakh, irrespective of the total loan amount. For example; if a first time home buyer in this income slab borrowed Rs. 20 lakh for purchasing a house under CLSS at 9% per annum, he would have to pay a subsidized interest of 2.5% on the first Rs. 6 lakh, and normal interest of 9% on the remaining Rs. 14 lakh.
Earlier, the subsidy was available only to buyers whose income was up to Rs. 6 lakh. Shortly after the union budget 2017-18, the government announced subsidy for buyers in the higher income brackets in two categories. Those earning Rs. 6 lakh to Rs. 12 lakh per annum were categorised as MIG-I and those earning Rs. 12 lakh to Rs. 18 lakh per annum were categorised as MIG-II.
First time home buyers, whose income is in the first category, can now get an interest subsidy of 4 percentage points on a principal amount of Rs. 9 lakh. Those in the second category can avail a subsidy of 3 percentage points on a principal component of Rs. 12 lakh. The new slabs are applicable to loans with tenure of up to 20 years, against an earlier limit of 15 years.
In November 2017, the Union Cabinet raised the carpet area for MIG houses purchased through PMAY-CLSS. Carpet area for MIG-I was increased from the existing 90 square metres to 120 square metres. The same was increased for MIG-II from 110 square metres to 150 square metres.
Earlier this month, the carpet area was further increased to 160 square metres and 200 square metres respectively for MIG-I and MIG-II. Given that a first time buyer with a maximum income of Rs. 18 lakh will still not be able to afford such a large accommodation in Delhi or Mumbai, this initiative of the government appears to be targeting buyers in tier-III and tier-IV cities.
There are various first time home buyer tax benefits as well. While anyone who buys a house can claim tax benefits on repayment of the loan u/s 80C of the IT Act 1961, a first time buyer can claim tax benefits on the principal repayment and the interest paid. Apart from the principal repayment, first time home buyers can claim deduction of up to Rs. 2 lakh on interest payment of home loans u/s 24(b) of the Act. Subject to the fulfilment of prescribed criteria, first time home buyers can also claim further deduction of up to Rs. 50,000 per financial year u/s 80 EE of the Act. In January this year, the government has also cut the GST rate for houses purchased under PMAY-CLSS form 12% to 8%.
Given the aforesaid largess in the form of government subsidy for first time home buyers and tax SOPs, it appears to be a never before opportunity for them.