The one percent interest subvention scheme is on till March 31. You need to ensure you claim the tax advantage
The government, in the Union Budget of 2009-10, had announced a scheme of one percent interest subvention on individual housing loans up to Rs 10 lakhs, provided the cost of the house does not exceed Rs 20 lakhs. The scheme was valid till September 30, 2010. There was an initial allocation of Rs 1,000 crores. During the last Union Budget, the scheme was extended till March 31, 2011, with an additional provision of Rs 700 crores.
Accordingly, housing loans sanctioned or disbursed up to March 31, 2011 are eligible for the interest subsidy of one percent. The objective of the scheme is to provide interest subsidy on housing loans as a measure to generate additional demand for credit, and to make housing more affordable for the middle and low income groups. It is being implemented through the scheduled commercial banks and housing finance companies throughout the country and will be in operation up to March 31, 2011.
The Reserve Bank of India (RBI) is the nodal agency for the scheme in respect of all the scheduled commercial banks (SCBs) as implementing agency. After sanctioning and disbursing the eligible loans, SCBs can claim disbursement of subsidy from the RBI on a monthly basis. The banks have to ensure the eligible borrowers avail the benefit of interest subvention for one housing unit only.
The scheme recognises that a cut in interest rate has an important role to play in reducing EMIs of borrowers and creating additional demand for housing. The scheme is expected to provide relief to prospective home owners and improve home ownership in the specified target segment.
Interest subvention of one percent will also be available on housing loans up to Rs. 10 lakhs to individuals for extension of an existing house, provided the cost of the extension does not exceed Rs 20 lakhs.
The subsidy is defined as a reduction in interest rate by 100 basis points per annum from the existing rate of interest for a particular amount and tenure. It will be applicable to the first 12 instalments of all such loans sanctioned and disbursed during the currency of the scheme, and will be computed for 12 months on the disbursed amount. The subsidy amount will be adjusted upfront in the principal outstanding, irrespective of whether the loan is on fixed or floating rate basis.
In case the loan amount is disbursed in parts (instalments), the interest subsidy will be calculated for one year and can be claimed separately for every instalment of the loan disbursement within the operating period of the scheme. The interest subsidy will be calculated on the interest chargeable at the time of disbursement of the loan.
The RBI has clarified that NRIs are not eligible for the incentive.
