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In a bid to encourage housing for the marginalised, the Ministry of Housing and Urban Poverty Alleviation is considering raising the cap on the interest subsidy scheme to Rs 5 lakh from the present Rs 1 lakh.
The Ministry introduced the Interest Subsidy for Housing the Urban Poor in late 2008 for helping economically weaker sections (EWS) and low-income groups (LIG) buy or construct houses.
Under the present scheme, borrowers from the two categories are entitled to an interest subsidy of 5 per cent for home loans up to Rs 1 lakh from banks and housing-finance companies.
“The interest subsidy was allowed on the principal amount on an upfront basis. So, that helped to bring down the equated monthly instalments payable by a customer substantially,” Lalit Kumar, General Manager, National Housing Bank, said.
However, unfortunately the scheme has not picked up as envisaged, he added.
Today, property prices have gone up considerably and the Ministry has also changed the definitions of EWS and LIG.
Now, households earning Rs 1 lakh or less a year are considered economically weaker and ones earning Rs 2 lakh a year low-income. Assuming that a customer is allowed to borrow up to five times her annual income, then the loan eligibility becomes Rs 5 lakh and Rs 10 lakh for EWS and LIG, respectively.
“Thus, the Ministry is looking to enhance the interest subsidy on loans up to Rs 5 lakh. However, instead of providing subsidy on an upfront basis, the Ministry may provide subsidy on an annual basis. The subsidy will be staggered over a period of the term of the loan, which is usually 15-20 years,” Kumar added.
OTHER MEASURES
Kumar said that giving infrastructure status to low-cost houses will ensure that more such houses are built.
“A decade-long tax exemption on profit earned from affordable housing projects to developers can help ignite their interest. We have already recommended this to the Ministry of Finance,” he said.
“We have also recommended to the Ministry that institutions which lend up to Rs 10 lakh should be exempt from tax on the income they earn from lending for affordable projects.”
>satyanarayan.iyer@thehindu.co.in
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