The Credit Linked Subsidy Scheme (CLSS) was launched by the Ministry of Housing and Urban Poverty Alleviation (MoHUPA) in June 2015. The purpose of the scheme is to provide interest subsidy on housing loans.
This scheme was launched under Pradhan Mantri Awas Yojana (Urban).
Updated on 15/05/2020: The deadline for CLSS for the middle-income group expired in March 2020. The Government decided to extend the deadline for the scheme until March 2021. The announcement was part of the second tranche of Prime Minister Modi’s special economic package of 20 lakh crore to deal with the coronavirus pandemic.
[You may read: What does Modi’s 20 lakh crore package mean?]
Pradhan Mantri Awas Yojana -Housing for All (Urban)
The Pradhan Mantri Awas Yojana -Housing for All mission aims to address the housing shortage in India. It intends to provide housing for all by 2022.
The components of the scheme are:
- In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation
- Credit Linked Subsidy
- Affordable Housing in Partnership
- Subsidy for beneficiary-led individual house construction/enhancement.
Out of the above, the Credit linked subsidy scheme component is being implemented as a Central Sector Scheme, while the other three components as a Centrally Sponsored Scheme (CSS).
A Central sector scheme is funded by the Union Government and implemented by the Central Government machinery. A centrally sponsored scheme is partly funded by the states and implemented by the State Government.
Credit linked subsidy scheme
The credit-linked subsidy scheme (CLSS) provides interest subsidy on housing loans availed by the urban poor and middle-income groups. It was launched to make it affordable for poor and middle-class people to own a house.
It is a demand-side intervention to increase participation in the housing market.
Note: The scheme was initially launched for Economically weaker sections (EWS) and Lower income group (LIG) in 2015. It was extended to include the Middle-income group (MIG) in January 2017 and was called Credit linked subsidy scheme (CLSS) for MIG. The previous scheme was renamed as Credit linked subsidy scheme for EWS and LIG.
Purpose of the scheme:
Interest subsidy will be given to the eligible beneficiaries.
The amount of subsidy will be credited upfront to their loan accounts. It will result in the reduction of the principal loan amount to be repaid. This, in turn, will lower the Equated Monthly Instalment (EMI) for repayment of the loan.
To illustrate: A person from the Middle-Income Group (MIG) has taken a loan of Rs.600000 for buying a house. If the interest subsidy comes out to be Rs.156712, it will be credited to his loan account. Now, he has to repay the balance principal amount of Rs.443288 (Rs.600000 – Rs.156712) only and not Rs.600000. His EMI will be adjusted accordingly.
The person has got a loan of 600000, but he has to repay Rs.443288. Hence, Rs.156712 (subsidy) is a gain in the hands of the borrower.
Beneficiary:
A family will be a beneficiary if it belongs to the following income groups:
- Economically weaker sections (EWS) – Annual family income less than 3 lakhs
- Lower Income Group (LIG)- Income between 3 lakhs and 6 lakhs
- Middle-income group-1 (MIG-I) – Income between 6 and 12 lakhs
- Middle-income group-II (MIG-II) – Income between 12 and 18 lakhs
In Annual family income, the income of husband, wife, unmarried sons, and unmarried daughters will be considered.
The rate of interest rate subsidy:
- 6.5 % for EWS and LIG
- 4 % for MIG-I
- 3% for MIG-II
The amount of interest subsidy is calculated through Net Present Value (NPV) method. The discount rate used for the NPV calculation of interest subsidy is 9%.
Eligibility criteria for EWS and LIG:
- The beneficiary family should not own a pucca house in India
- The housing loan sanctioned after 17/6/2015 will be eligible for the subsidy.
- The maximum loan amount eligible for the subsidy is Rs.6 lakhs
- The maximum tenure of the loan can be 20 years
- The carpet area of houses being constructed should be up to 30 square meters and 60 square meters for EWS and LIG, respectively.
- The beneficiary family should not have availed of any other housing scheme from the Government.
- The subsidy would be available for housing loans availed for new construction and addition of rooms, kitchen, toilet, etc. to existing dwellings as incremental housing.
Eligibility criteria for MIG-1 and MIG-II
- The beneficiary family should not own a pucca house in India.
- The housing loan sanctioned after 1/1/2017 will be eligible for the subsidy.
- The maximum loan amount eligible for the subsidy is Rs.9 lakhs and Rs.12 lakhs for MIG-I and MIG-II respectively
- The maximum tenure of the loan can be 20 years.
- The carpet area of houses being constructed should be up to 90 square meters and 110 square meters for MIG-1 and MIG-II, respectively.
- The beneficiary family should not have availed of any other housing scheme from the Government.
- The subsidy will support acquisition/ construction of the house.
Lastly, this scheme is being implemented through two central nodal agencies – National Housing Bank (NHB) and Housing Urban Development Corp (HUDCO). These agencies channelize the subsidy to the lending institutions and monitor the progress of the scheme.
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Reference:
The amount of interest subsidy is calculated through Net Present Value (NPV) method. The discount rate used for the NPV calculation of interest subsidy is 9%.
Hello Mam, can you explain in more simpler terms with an example.
Let us say, the rate of interest is 12 % on a loan of 500000 for 2 years paid in annual installments. The borrower has to repay Rs.250000 at the end of the first year and the remaining Rs.250000 at the end of 2nd year. Along with this amount, the borrower has to pay interest rate of 12 % as well.
Let’s say- the interest rate subsidy given is 6.5 %. It means that the borrower will pay 12 % interest out of which 6.5 % has been subsidised. We calculate the amount of subsidy through the NPV method.
For the first year, the interest subsidy = (500000 * 6.5 * 1) / 100 = 32500
For the second year, the interest subsidy = (250000 * 6.5 * 1)/ 100 = 16250
The interest subsidy is discounted using the NPV method to calculate the present value of the subsidies(discount rate is 9 %)
First year subsidy = 32500 / (1 + 0.09) = 29816.51
Second year subsidy = 16250 / (1 + 0.09) = 14908.26
We add the interest subsidies of the first and the second year to get the total amount of interest subsidy.
I hope it helps. You can apply the concepts in this example to understand the subsidy calculations for monthly installments and longer maturity. We use excel for lengthy calculations.
You can refer to this article – //www.moneylife.in/article/how-the-credit-linked-subsidy-scheme-clss-works/47747.html