Budget 2025: Will FM reintroduce credit-linked subsidy under Pradhan Mantri Awas Yojana for MIG homebuyers?

Ahead of Union Budget 2025, homebuyers are optimistic that Finance Minister Nirmala Sitharaman will implement measures that will alleviate their financial strain and increase accessibility to homeownership. One of the key expectations from homebuyers is the possible reintroduction of the Credit Linked Subsidy Scheme (CLSS) for the MIG category under the Pradhan Mantri Awas Yojana. This scheme previously offered a subsidy of up to Rs 2.67 lakh to eligible beneficiaries, and its revival is eagerly awaited by many in the housing sector.

The benefits under the Credit Linked Subsidy Scheme (CLSS) of PMAY included an interest subsidy of up to Rs 2.67 lakh per house. This subsidy was available for beneficiaries in the Economically Weaker Section (EWS)/Low Income Group (LIG), Middle Income Group (MIG)-I, and Middle Income Group (MIG)-II who were seeking housing loans from banks, Housing Finance Companies, and other institutions for the purpose of acquiring or constructing houses.

Interest subsidies of 6.5%, 4%, and 3% were available to homebuyers for loan amounts up to Rs 6 lakh, Rs 9 lakh, and Rs 12 lakh, respectively. These subsidies were applicable to houses with a carpet area of up to 60, 160, and 200 Sq/meter for EWS/LIG, MIG I, and MIG II categories.

The subsidy scheme for EWS/LIG was initially closed on March 31, 2022, but was later reintroduced. For MIG segments, the scheme was closed on March 31, 2021.

Budget 2024

In 2024, Finance Minister Sitharaman announced the reintroduction of interest-backed subsidy within the Pradhan Mantri Awas Yojana (Urban) (PMAY-U) 2.0 scheme. Additionally, a budget of Rs 4,000 crore was allocated for the Credit Linked Subsidy Scheme (CLSS) component under the scheme. A central assistance of Rs 2.2 lakh crore was earmarked for the construction of houses by one crore urban poor and middle-class families over the next five years. Furthermore, Rs 3,000 crore was designated for the Economically Weaker Sections (EWS) and Low-Income Groups (LIG), while Rs 1,000 crore was allocated for the middle-income group to construct houses under CLSS in urban areas. In 2022, the government did not extend the period for CLSS.

Pradhan Mantri Awas Yojana (PMAY) is a government scheme aimed at providing affordable housing through subsidised home loans based on income. The scheme is executed through three verticals known as Beneficiary Led Construction/Enhancement, Affordable housing in partnership, and in-situ Slum Redevelopment.

Key expectations 

Atul Monga, CEO & Co-Founder of BASIC Home Loan, expressed that home loan borrowers are hopeful for upcoming policy changes to improve homeownership affordability. According to Monga, borrowers are optimistic that policy revisions in the Budget 2025 will lessen their financial burdens and enhance accessibility to homeownership.

Monga highlighted the importance of increasing the tax deduction limit on home loan interest under Section 24(b) from Rs 2 lakh to Rs 5 lakh. He also proposed raising the Section 80C limit from Rs 1.5 lakh to Rs 2.5 lakh, with a specific sub-limit for home loan principal repayment, as ways to further encourage potential homebuyers.

Monga highlighted the desire of numerous middle-income homebuyers for the reintroduction of the Credit Linked Subsidy Scheme (CLSS) within the Pradhan Mantri Awas Yojana. He emphasized the necessity of revised income and loan criteria to increase housing affordability. Additionally, he suggested that reducing GST on under-construction properties and affordable housing would further enhance accessibility to homes.

Avnish Arora, Executive Director at Forvis Mazars in India, emphasized the need for reforming the tax framework to provide better support for middle-class taxpayers. He highlighted that the current Rs 2 lakh limit on home loan interest deductions, established in 2019, has not adjusted for inflation and the escalating property values. He suggested that to assist middle-class taxpayers, the home loan interest deduction limit should be raised and the Section 80C limit should be revised to align with present economic circumstances.

Tejas Patil, Founder of Arbour Investments, emphasized the necessity for reforms to unleash the true potential of the real estate sector in India. Currently, the sector contributes approximately 7.3% to the country's GDP, with projections indicating a rise to 13% by 2025.

Patil advocated for an increase in the tax exemption limit for housing loans, proposing a raise from Rs 2 lakh to Rs 3 lakh. This adjustment could potentially make homeownership more accessible for the middle-income demographic.

In addition, Patil recommended modifications to GST regulations, particularly endorsing the allowance of input tax credit on under-construction properties. This change would result in cost reductions for both developers and end-users.

Furthermore, Patil stressed the importance of lowering the GST rate on cement from 28% to 18%. Such a move would not only decrease construction expenses but also foster growth within the housing sector.