The Pradhan Mantri Awas Yojana (PMAY) scheme helps individuals buy or construct homes by providing an interest subsidy on home loans. It reduces the loan repayment burden, making homeownership more affordable. But few people are aware that the government can take back the subsidy under certain circumstances. If this happens, the subsidy amount gets added back to the loan’s principal, increasing the EMI burden for the borrower.
Below are three key conditions under which the government can withdraw the PMAY subsidy.
1. Loan Defaults and NPA Status
One of the primary reasons for losing the PMAY subsidy is if the borrower fails to repay the loan and the loan becomes a Non-Performing Asset (NPA). This means that if the borrower is unable to pay the EMIs regularly, the bank declares the loan as NPA, and the subsidy is reversed.
2. Construction Halts After Loan Approval
The second scenario is when construction on the property stops after the home loan has been approved and the subsidy distributed. In such a case, the government has the right to take back the subsidy and return it to the central nodal agency responsible for disbursing the subsidy. This is done to ensure that the funds are being used for the purpose they were meant for.
3. Failure to Submit Utilization Certificate
The third reason for subsidy withdrawal is the non-submission of the utilization or end-use certificate. Banks are required to submit this certificate to the nodal agency to confirm that the house has been completed within a specific timeframe. Generally, the bank must submit this certificate within one year of loan disbursement or at the latest within 36 months. Failure to do so leads to the subsidy being reclaimed by the government.
PMAY Subsidy Process
Under PMAY, the interest subsidy is credited in advance to the borrower’s loan account. This reduces both the principal amount and EMI from the start. It is important to note that this is not a reduced interest rate but a Net Present Value (NPV) of the subsidy calculated at a 9% discount rate. The subsidy allows borrowers to save money on their home loans and makes the dream of owning a house more achievable.
Nodal Agencies for PMAY
Three central agencies manage the distribution of PMAY subsidies: the National Housing Bank (NHB), Housing and Urban Development Corporation Limited (HUDCO), and the State Bank of India (SBI). They ensure that the subsidies are released to the banks for eligible borrowers.
PMAY 2.0 was launched on August 9 last year, following the success of PMAY 1.0. While the new operational guidelines have been released, they have not yet been made public. However, it is expected that the conditions for subsidy withdrawal will remain the same.
