The recent announcements regarding policies like Housing for All by 2022 and the Pradhan Mantri Awas Yojna have made it a point to allocate houses for the urban poor, especially those living in abject poverty in slums. These schemes have the combined object of providing everyone with a decent, sturdy house with the availability of modern amenities like water, electricity and natural gas. The Yojna, in question, has four basic components: rehabilitation of present slum dwellers by using land via private partnership, subsidiary for beneficiary-supported construction/enhancement of homes, affordable housing through partnership and credit linked subsidy scheme.
The Government wants urban dwellers to own a house (a pucca house) and thus they’re encouraging homebuyers – especially first-timers – to apply for home loans with a trustworthy lender and get the home they desire in a process that’s hassle-free. To provide a fillip to this process, the Government has launched the Credit Linked Subsidy Scheme. Since procuring a loan is similar to getting credit, and the scheme announced by the Government provides subsidies on the home loan interest rates, the scheme has been named Credit Linked Subsidy Scheme (referred to CLSS hereafter).
To avail a subsidy under this scheme, an applicant should not own a dwelling unit on their name or on the name of a family member across the length and breadth of the country. Also, the applicant and their dependents should not have availed any assistance by the Central Government, regarding various housing schemes, to avail this scheme
Referring to the CLSS scheme, the applicant is an adult earning member (who might be married or unmarried), who doesn’t own a pucca house – that is, an all-weather unit – own their name anywhere in India. Such an applicant, even when co-habiting with other family members, would be considered as a separate household.
The various slabs for which the subsidies on the home loan interest rates, suggests a progressive nature of subsidization where families earning an annual income of 3 lakh rupees have a subsidy of about 6.5% for a loan of 6 lakh rupees. This subsidy rate drops to 3% if the beneficiary has an income of 12 lakh rupees per year, if the loaned amount is upto 12 lakhs. When the loan amount exceeds 12 lakh rupees then the additional part of the loan shall not be subsidized under this scheme. The maximum tenure of these loans are to last not more than 20 years. The subsidized amount provided by the Government would also be credited to the beneficiary. Therefore, this subsidization will reduce the effective loan amount and the EMI payable on it.
In order to understand the benefits of CLSS it is important to understand how tjhe loan would be calculated. Suppose, you’re taking a loan of 6 lakh rupees and your lender is offering you an interest rate of 10%, the subsidy slab you’re in gives you a subsidy rate of 6.5%. However, the subsidy won’t be calculated by merely by subtracting the original rate of interest with the reduction percentage, but rather, it would be calculated through the Net Present Value of the interest subsidy amount.
According to the Ministry of Housing and Urban Poverty Alleviation database, the Credit Linked Subsidy Scheme was launched in order to increase the institutional flow of credit, to aid in the development of housing for the urban poor. It’s meant to be a demand side intervention by the Government, just like how the UJALA scheme worked in the energy sector. Through this scheme, the Government seeks to credit interest subsidy upfront into the loan account of beneficiaries. This would be made possible by the partnership of leading lending institutions, who are expected to co-operate with the government on many levels.
Subsidy through CLSS can be availed for both under construction and ready-to-move-in properties. These interest rate subsidy schemes can only be availed if the builder/developer is a recognized one. This scheme is available with banks and Housing Finance Corporations (HFCs). On the other hand, Housing and Urban Development Corporation (HUDCO) and National Housing Board (NHB)are the vanguard of this Government sanctioned project, who wil take charge for figuring out the actual details and implementation of the CLSS scheme.
After you apply for a CLSS-linked home loan, your form would be duly verified and then it would be sent back to the lending company with an acceptance or rejection slip. The home loan that would be disbursed to you would already be subsidized as the Government is subsidizing the loan before disbursement. It takes between 30 and 46 days to complete verify and approve/reject applications. If the application is approved, the lender immediately disburses the loan amount into your account.