Should You Take a Personal Loan for Starting a Business?

Starting a business is not a cake-walk on a straight road but a path full of twists and turns. As it is said the biggest challenge is to begin, the biggest hurdle lies in raising the requisite capital for your startup. Bootstrapping is not always an option and while investors are a good source for both funds and mentoring, it takes a lot of time, effort and convincing on your part to make them take an interest in your business. Your business proposal should be well-tailored, you must have conducted in-depth market research and your business revenue model must be promising as well as visionary. The same goes for business loans. Then how to arrange the funding? Well, you can simply go for a personal loan. The loan approval is solely based upon your personal creditworthiness and the disbursal of funds is done within a few snaps of fingers.

Start-up and Personal Loan

Since you do not need to specify the reason about how you are going to utilize the funds generated by the means of a personal loan, you can use it for any purpose, even for funding your business. The loan process is simple involving minimal documentation (you just need an identification proof, address proof, and income proof) and verification. There is no requirement to pledge any of your assets and the funds are transferred to your account in no time. However, the interest rate for a personal loan is comparatively higher than what will be offered to you in case of a small business loan.

The stats are not your best friend when it comes to establishing your startup. According to a recent report published by the IBM Institute for Business Value and Oxford Economics, with the title “Entrepreneurial India,” 90% of the startups fail within the first five years in India. Going for a personal loan for starting a business under such scenarios doubles the risk. On one side you will bear the burden of the loss of investment funds and on the other side will be a tarnished personal credit flow. This justifies Mark Cuban’s words, “Only morons start a business on a loan.”

Should You Take a Personal Loan for Business?

What Cuban implies to say is that while going for a loan if you have steady income inflows is a good idea, availing one at a time when you are risking your entire income for establishing an enterprise of your own can prove to be deadly. Therefore, you must secure both- your income sources as well as your personal credit lines before adventuring into the treacherous waters of availing a personal loan for a business.

Benefits of Taking a Personal Loan for Starting a Business

Availing a personal loan for starting your business could be a good idea as a personal loan comes with many benefits attached to it. These include:

Easy Qualification

The eligibility norms for a personal loan are simpler than those of any other business loans. The eligibility for a personal loan depends on factors such as age,  occupation, income, employment & income stability, residential status & stability, credit score and number of dependents. You do not need to present your business proposal and revenue model for availing a personal loan for starting your business. Its approval is mainly dependent upon your net monthly income and credit report.

Instant Disbursal of Funds

Since a personal loan does not involve much documentation and verification, the approval process takes an average of 24 to 48 hours and funds are transferred instantly into your personal loan account. This makes this loan the fastest method to arrange funds for meeting immediate cash requirements of your business.

No Requirement of Collateral

As most personal loans are unsecured loans, you do not necessarily keep a valuable asset as security with the bank. Therefore, you can enjoy business funding without the fear of losing your asset.

Disadvantages of  Taking a Personal Loan for Starting a Business

Using your personal loan for business purposes can bring in many adversaries and can land you in difficult waters. Some of the disadvantages are listed below:

Risking Your Personal Credit

As already mentioned in the article, starting a business is a risky affair and taking a personal loan for starting your business can damage your personal finances. Since a personal loan is taken by an individual, you need to repay the loan even if your business fails to operate. Therefore, there is a lot at stake while going with the option of taking a personal loan for starting a business.

Limited Funds

While your business requirements may increase from time-to-time, a personal loan provides limited access to funds. While some banks like HDFC Bank can offer a personal loan of up to Rs. 50 lakh, most banks do not lend over Rs. 20 lakh in case of a personal loan. Therefore, a personal loan may not meet all your entrepreneurial requirements.

High Rates of Interest

Personal loans being unsecured are risky for lenders and they, therefore, charge very high rates of interest for personal loans. Depending upon the creditworthiness of a borrower, some banks can even charge interest at rates as high as 26%.

Things to Take into Consideration Taking a Personal Loan for Starting a Business

There are certain factors that you must keep in mind while opting for a personal loan for startups. These are:

Debt-to-income Ratio

Debt-to-income ratio is one of the primary factors that lenders take into consideration while processing your loan request. This ratio indicates your ability to manage loan repayment. Normally, a debt-to-income ratio of greater than 43% is considered good by the lenders. You must ensure that you have a good debt-to-income ratio otherwise even if your loan application gets approved, the EMI payment will exhaust all your monthly income and all you will be left with is peanuts, and it will become impossible to manage your monthly expenses.

Credit Score

Credit score is another crucial factor that helps a bank decide upon the various aspects of your loan request. The bank often offers a high interest rate to individuals having low credit scores. Therefore, you must check your credit score before proceeding with your loan application as there are chances of rejection if you are at the lower side of credit score.

Should You Start a Business with a Personal Loan?

While starting a business with a personal loan is not an entirely bad idea in itself but overlooking the various how’s and what’s is like skating on the thin ice. You can go for a personal loan for starting your business if you have a stable income source, a good credit score and a high debt to income ratio. If you do not have a decent credit score or a debt-to-income ratio of at least 45% and still opt for a personal loan, you are opening a pandora box as your business will not start generating huge returns immediately after coming into operation. It will take a lot of time to start earning profits. You must ensure that you can manage your debt repayment till the time your business is still making its mark otherwise a personal loan availed at a high interest rate will exhaust all your income.

Credit Card Fraud

Credit card fraud is a form of theft committed by an individual with the intent of stealing from a lost, stolen or revoked credit card. A person does not need to necessarily possess the actual credit card for committing fraud. Somebody using your card information, without your knowledge, is also a form of credit card fraud. In simpler terms, credit card fraud is the phenomenon of making purchases without having to pay from one’s own pockets.

In certain cases, credit card fraud can also take the form of identity theft. A person possessing your card information can use it to get new credit cards on your account without you even suspecting anything. It can be difficult to detect credit card fraud in these scenarios.

Types of Credit Card Frauds

With the continuously digitalising world, credit cards have been gaining more and more popularity. The ease of payment options, instant fund generation and wonderful reward programs have been attracting new users towards this magical tool. Therefore, it is no surprise that credit card frauds are elevating at an alarming rate. All that is on a boom is bound to be misused. Gone are the days when stealing a card and dumpster diving used to be the only methods for committing a credit card fraud. Now, the financial sphere is full of fraudulent methods. Here, we have listed some of the most common ones.

Stealing the card

Card stealing is the oldest method to commit credit card fraud. Anybody who is in possession of your card can swipe it as much as they want, provided the amount spent is within the prescribed limit of your credit card. You will not even get to know until you receive your monthly credit card bill. However, these days you have the option to block your card. Make a credit card block request to your bank as soon as you find out that your plastic buddy has been missing from your wallet.

Dumpster Diving

It is a common term used to refer to the person treasuring into somebody else’s trash. Certain fraudsters scan through trash to look for copies of your credit card receipts. These receipts have critical information about your credit card including your card number. They later use this information to make transactions from your credit card account. To keep a check on this, you must go through your credit card statement from time-to-time for any unknown transactions.

Stealing Mails

There are many fraudsters who steal your credit card from posts/ mails. Your new credit card will never even reach you before it starts getting misused at the hands of these thieves. Do keep a track on your mails if you have applied for a credit card or are expecting a reissued one.

Counterfeit Credit Cards

This can be understood as cloning. There are certain credit card swipe machines which are equipped with tools and software to store the card information encoded in the magnetic strip of your card. This information is transferred to a new magnetic strip which is used to create a replica of your credit card. Currently, this is the most popular method for credit card frauds. To counter this challenge, credit card companies have now come up with cards embedded with microchips instead of magnetic strips. However, the problem still persists.

Account Takeover

Some fraudsters use your card information to apply for a new credit card on your name. Now, you will not even be aware of its existence and it would be depleting your credit image. This is a case of identity theft as the person with your card information can use it for issuing multiple cards by pretending to be you. With e-commerce gaining popularity, these types of frauds have become common as many online merchants can record your card information and use it later.

Multiple Imprint

Certain merchants use the old, manual card reading devices to record a single transaction multiple times. This is referred to as multiple imprints. You are charged multiple times for a single purchase.

How to Protect Yourself From a Credit Card Fraud?

Much to your relief, India is a relatively safer country when it comes to Credit Card frauds. The stringent RBI norms and guidelines have provisions like EMV chips on credit cards, two-way verification, compulsory OTP verification for online transactions, SMS alerts and Data Security Standards at merchant stores, which help avoid frauds to some extent. Therefore, committing credit card fraud in India is difficult. However, it is still possible.

Besides the strict regulations, fraudsters manage to steal away your card information and misuse it. Most credit card frauds happen outside of India, where there are no two-way verifications and OTP requirements. There are certain safeguard measures that you can take to prevent yourself from becoming the victim of credit card fraud. These are:

Memorise Your CVV and Scratch It From the Credit Card

The CVV number is an important component for any transaction. Most fraudsters only copy your card number and CVV. So, the best way to prevent a credit card fraud is by scratching the CVV number from the back of your card. You can memorise it or write it at a safe place and then erase it.

Do Not Let Your Card Out of Your Sight

Many waiters and fuel station workers take your card along and do not return for 10-15 minutes. Avoid handing your card to them and make sure that your card is within your sight the entire time.

Avoid Making Online Transactions on Unsecured Sites

The sites whose URL start with “Https” are safe for online transactions, “s” stands for secure, meaning they can not record your card details. Avoid using your card on websites that start with the usual “Http”.

Activate Transaction Alerts

Contact your bank to send you transaction alerts on your registered mobile number. This can help detect fraudulent transaction on the spot and save you from being a victim of a fraud.

Check Credit Report Regularly

You must check your credit report from time-to-time and look for any cards that you are not aware of. This will not only save you from a credit card fraud but will also save your credit image from getting depleted.

Keep a Track of Your Mails

If you have applied for a new credit card that you are yet to receive, keep a tab of the status of the post with the issuer. This will help ensure that nobody has stolen your card.

What To Do If the Fraud Has Already Occurred?

If you are observing a credit card fraud, the first step should be to report the bank about the same. You can either call on the customer helpline number or personally visit the bank to file the report. It is to be noted here that if a fraudulent transaction is reported within 3 days, there is no liability to pay on the customer. That is why it becomes necessary to report the issue to the bank as soon as possible. You must also file an FIR at the nearest police station. Do not forget to inform the credit bureaus about the fraud as it can deplete your credit report.

Normally, the bank responds to your report within a week. However, if you do not hear anything from the bank, approach the bank’s nodal officer. If the issue still does not get resolved, approach the RBI appointed Ombudsman and file your grievances. You can also approach a court of law if you do not get satisfied with the responses and fight a legal battle.

What is FOIR?

FOIR (Fixed Obligations to Income Ratio) is a difference between the net monthly income and all of the assured financial liabilities a person holds including the EMIs of the loan that he/she have just applied.

As per Banks’ guidelines, a borrower can only lend from 45% to maximum 75% of their current net income so a person can manage his debt requirements as well as living expenses. The fixed liabilities analysed for the calculation of FOIR includes expenses for food, rent, transportation, utility and water bills etc. which is essential for living. And by using this guideline, the banks and financial institutions calculate how much loan can be offered to a borrower without being at risk. The higher your FOIR is, the higher loan amount you can get in respect of your monthly income.

How to Calculate FOIR?

FOIR Calculation

Calculating FOIR is simple. All you need to know is your net monthly income and the all of your fixed obligations including the monthly instalment of the proposed loan. Firstly, total the sum of all of your obligations including proposed EMI. Then, multiply by it 100 and divide by your net monthly income. The outcome will be a percentage figure, which is your current FOIR and you can avail the loan against only that much portion of your income.

However, to improve your calculation, you need to understand exactly what components of your income are considered when it comes to net monthly income. Such as, for salaried borrowers, the TA and DA are excluded when net monthly salary is calculating.

How to Improve FOIR?

Include Rental Income

In case you are earning any additional income by renting out your property to someone, then you can include it in your net monthly income to increase your FOIR and be eligible for comparatively higher loan amount. However, if you do so, you must provide the proof of rental income along with regular income documents.

Include Co-Applicant

If you don’t have any additional income but still wants to be eligible for a higher loan amount than what you are currently eligible for, then you should consider including a co-applicant to your loan.

If loan is being taken against a security such as home loans, then every owner of the property must be a co-borrower in the loan. In case of other type of loan such as unsecured personal loan, the co-applicant can be any one of your close family member as long as the person have a sufficient and regular source of income. It can be your spouse, father, unmarried brother, unmarried children. However, it is important to know that co-applicant must not be a minor.

In case of you are making your spouse a co-applicant, then she must have a regular source of income other than rental income of the spouse is not considered for eligibility.

Pay Existing Debt

Even if including your rental income doesn’t suffice to avail the loan amount as per your requirements, then you can simply pay-off some of your existing debts either by prepayment facility or by increasing EMI amount if bank/FI allow to do so. By paying off some of your existing debt, reduced the total amount of current fixed obligations which will result in high FOIR.

MCLR Rate

MCLR is introduced by RBI, to the banks and financial institutions, in order to help them decide interest rates for loans on the basis of the current lending rate (repo rate) as defined by the RBI from time-to-time. It represents the minimum interest rate criteria of a bank below which the bank cannot lend except in some exclusive cases where RBI allows the banks/FIs to do so. Based on the current mclr, a bank decide the minimum lending rate for their loan products, be it personal loan, home loan, car loan or education loan etc.

The primary reason to introduce MCLR rate is to make the lending rate of the banks/financial institution more transparent for a borrower and link borrowers to the benefits of repo rate. Earlier, interest rates were linked to Base rate which used to create a layer on how banks/FIs calculate the interest rates for a borrower.

The current interest of any type of loan or credit limit it linked to MCLR. Hence, by knowing the current MCLR of a bank or financial institutions, the borrowers can calculate the minimum interest rates of the bank especially in case of floating rate loans.

HDFC Bank MCLR Rates

TenureMCLR Rates
Overnight8.20%
1 Month8.20%
3 Months8.30%
6 Months8.40%
1 Year8.60%
2 Years8.70%
3 Years8.85%

SBI Bank MCLR Rates

TenureMCLR Rates
Overnight7.90%
1 Month7.90%
3 Months7.95%
6 Months8.10%
1 Year8.25%
2 Years8.35%
3 Years8.45%

ICICI Bank MCLR Rates

TenureMCLR Rates
Overnight8.55%
1 Month8.55%
3 Months8.60%
6 Months8.75%
1 Year8.80%

Axis Bank MCLR Rates

TenureMCLR Rates
Overnight8.40%
1 Month8.40%
3 Months8.55%
6 Months8.70%
1 Year8.80%
2 Years8.90%
3 Years8.95%

Yes Bank MCLR Rates

TenureMCLR Rates
Overnight8.25%
1 Month8.90%
3 Months9.45%
6 Months9.55%
1 Year9.70%

Indusind Bank MCLR Rates

TenureMCLR Rates
Overnight9.35%
1 Month9.40%
3 Months9.70%
6 Months9.85%
1 Year9.90%
2 Years10%
3 Years10.05%

Capital First MCLR Rates

TenureMCLR Rates
Overnight8.60%
1 Month8.60%
3 Months8.80%
6 Months9%
1 Year9.25%
2 Years9.35%
3 Years9.5%

Citibank MCLR Rates

TenureMCLR Rates
Overnight8.45%
1 Month8.65%
3 Months8.70%
6 Months8.80%
1 Year8.80%

Kotak Mahindra Bank MCLR Rates

TenureMCLR Rates
Overnight8.30%
1 Month8.35%
3 Months8.60%
6 Months8.80%
1 Year9%
2 Years9.05%
3 Years9.05%

Standard Chartered Bank MCLR Rates

TenureMCLR Rates
Overnight8.40%
1 Month9.05%%
3 Months9.40%
6 Months9.40%
1 Year9.60%
2 Years9.95%
3 Years10%

PNB MCLR Rates

TenureMCLR Rates
Overnight8.05%
1 Month8.10%
3 Months8.15%
6 Months8.35%
1 Year8.45%
3 Years8.65%

Bank of Baroda MCLR Rates

TenureMCLR Rates
Overnight8.25%
1 Month8.30%
3 Months8.40%
6 Months8.60%
1 Year8.65%

IDBI Bank MCLR Rates

TenureMCLR Rates
Overnight7.95%
1 Month8.25%
3 Months8.45%
6 Months8.65%
1 Year9.05%
2 Years9.30%
3 Years9.30%

RBL Bank MCLR Rates

TenureMCLR Rates
Overnight9.45%
1 Month9.50%
3 Months9.75%
6 Months9.95%
1 Year10.25%
2 Years10.50%
3 Years10.60%

Bank of India MCLR Rates

TenureMCLR Rates
Overnight8.20%
1 Month8.30%
3 Months8.45%
6 Months8.60%
1 Year8.65%

Bandhan Bank MCLR Rates

TenureMCLR Rates
Overnight10.30%
1 Month10.32%
3 Months10.36%
6 Months10.39%
1 Year10.45%
2 Years10.78%
3 Years10.86%

Federal Bank MCLR Rates

TenureMCLR Rates
Overnight8.75%
1 Month8.85%
3 Months9%
6 Months9.1%
1 Year9.2%

Indian Bank MCLR Rates

TenureMCLR Rates
Overnight8.10%
1 Month8.25%
3 Months8.45%
6 Months8.55%
1 Year8.65%

Andhra Bank MCLR Rates

TenureMCLR Rates
Overnight8.20%
1 Month8.25%
3 Months8.45%
6 Months8.60%
1 Year8.75%

Corporation Bank MCLR Rates

TenureMCLR Rates
Overnight8.10%
1 Month8.25%
3 Months8.55%
6 Months8.90%
1 Year8.95%

Syndicate Bank MCLR Rates

TenureMCLR Rates
Overnight8.20%
1 Month8.30%
3 Months8.45%
6 Months8.60%
1 Year8.65%

HSBC Bank MCLR Rates

TenureMCLR Rates
Overnight8.30%
1 Month8.30%
3 Months8.60%
6 Months8.85%
1 Year9.05%

MCLR vs. Base Rate

  • The primary difference in MCLR and Base Rate is that the base rate is mainly linked to the marginal profit of the bank, whereas MCLR rate is mainly link to the marginal cost of funds.
  • MCLR is linked to repo rate which is being controlled by the RBI unlike base rate which were controlled by the banks/FIs itself. So, if the RBI decides to lower the repo rate, interest rates linked to MCLR would go also become cheaper to the borrower as compared to base rate where the borrower would have still be paying the same amount.

How to Calculate MCLR Rates?

Since, MCLR rate is linked to the four main factors, marginal cost of funds, tenure premium, operational cost, and negative carry on cash reserve ratio account. A borrower can understand MCLR rate by knowing these four factors. Although, banks and financial institutions publish their mclr rates each quarter.

Marginal Cost of Funds

Marginal cost of funds is calculated based on two elements, majority of marginal cost of the loan amount, and portion of return on the net-worth. The marginal cost of funds can be calculated using a simple formula, given below.

  • Marginal cost of funds = (92% of the Marginal cost of borrowings) + (8% of the Return on networth)

Operational Cost

Operation cost is what banks and financial institutions has to bear in order to raise the funds for lending. However, it doesn’t include the service charges being recovered by the borrower at the time of loan processing.

Tenure Premium

Banks and Financial institutions calculate interest rates based on the periodic mclr rates which is further calculated based on the premium calculated for a certain period of time. It can be overnight, 1 month, 3 months, 6 months, 1 month and any period of more than 1 year which bank seems fit as per their lending process. The tenure premium tends to be same for all kind of loans for a given period.

Negative Carry on Cash Reserve Ratio

The negative carry on cash reserve ratio is the difference between actual cash reserve ratio and the negative carry on the mandatory cash reserve ratio. This situation happens if the return on loan amount is zero, and affects mandatory Statutory Liquidity Ratio Balance (SLR).

Based on these four main components, a borrower can understand how a bank or financial institution struct their MCLR rates for any period of lending.

Pradhan Mantri Awas Yojana

Pradhan Mantri Awas Yojana is a financial aid for home loan borrowers, initiated by the central government to provide pucca house for beneficiaries under EWS (Economically Weaker Section), LIG (Lower Income Group) and MIG (Middle Income Group) categories in urban and rural areas of the country with the help of State/UT governments.

The mission is divided into two parts, PMAY – Urban for Urban cities and PMAY – Gramin for rural cities in India. The government is aiming to build 2.95 crore houses over the 7 years period starting from July 2015. Under this mission, government is offering subsidised interest rate ranging from 3% to 6.5% to the eligible beneficiaries to build or construct a new house.

PMAY – Urban

Under PMAY Urban, the government with the help of competent local housing authorities registered with central/state government in urban cities to provide financial help to any eligible local residents who is looking to purchase/construct his/her first pucca house with the help of a housing loan and earning an annual income of under a certain threshold. The government has targeted to construct upto 35% houses in the locality under this scheme, effective from 2015 to 2022.

Under the scheme, the government is aiming to build houses ranging between carpet area of 30 square meters to 150 square meters. However, States are flexible to determine the area of EWS house as per the local needs with information to the Central Ministry running the scheme.

The programme is designed to solve the housing needs of a local resident living in an urban city, and specifically targeting the following goals –

  • Slum rehabilitation of Slum Dwellers with participation of private developers using land as a resource.
  • To promote affordable housing for people who comes under weaker income section through credit linked subsidy.
  • To provide affordable housing in partnership with Public & Private sectors’ local authorities.
  • To provide subsidy to eligible individuals for construction of the house.

A Beneficiary will be eligible for availing only a single benefit under any of the existing options that is slum redevelopment with private partner, credit linked subsidy, direct subsidies to individual beneficiary and affordable housing in partnership.

Feature of PMAY – Urban

Subsidized Interest Rate

Under Pradhan Mantri Awas Yojana Housing for All mission, the central government of India is offering a subsidized interest rate of 6.5% on home loans to the eligible beneficiaries under EWS, LIG or MIG categories, where the home loan tenure is equal to 15 years.

Preference to Senior Citizens/Differently Abled

Under PMAY Housing for All mission, the preference is being offered to senior citizens (above 60 years) and the beneficiaries who are being considered under Differently Abled category for house on the ground floor under the housing projects being built.

Eligibility Criteria for PMAY Urban

  • An eligible family under this scheme will consist of husband, wife and unmarried children, where the family must not own a pucca house (an all weather dwelling unit) in the name of any member of the family at any location in India.
  • The family must be eligible under EWS criteria where the total annual income of the family is not above Rs. 3 Lacs. However, an eligible family can receive some flexibility on the income criteria from State/UT government depending upon the income in the locality as consulted with the Centre.
  • Families eligible under LIG criteria should have an annual income ranging between Rs. 3 Lacs to Rs. 6 Lacs.
  • Families eligible under MIG criteria should have an annual income ranging between Rs. 6 Lacs to Rs. 18 Lacs.
  • The beneficiary can only buy a new house using the benefits provider under the scheme. These benefits can not be availed on already built home.

Interest Rates for PMAY Urban

Beneficiary CategoryInterest SubsidyCarpet AreaIncome
EWS6.5%30 square metersUpto Rs. 3 Lacs
LIG6.5%60 square metersRs. 3 Lacs to Rs. 6 Lacs
MIG-I4%110 square metersRs. 6 Lacs to Rs. 12 Lacs
MIG-II3%150 square metersRs. 12 Lacs to Rs. 18 Lacs

PMAY – Urban Schemes

Credit Linked Subsidy Scheme (CLSS)

Under this scheme, the government is offering home loan subsidy of up to Rs 2.67 Lacs on housing loans by applying for Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana in urban areas only, if you’re an eligible beneficiary belonging to the EWS/LIG & MIG segment.

For Economically Weaker Section(EWS)/Lower Income Group(LIG), the interest subsidy will be provided on housing loans for acquisition, construction of house. The Credit Linked subsidy would also be available for housing loans availed for new construction and addition of rooms, kitchen, toilet etc. to existing dwellings as incremental housing.

The offered house is defined as pucca house capable of handling all weather conditions, either a single unit or a unit in multi-storeyed super structure such as multi-storeyed societies. The house for EWS Category will have a carpet area of upto 30 square meters and 60 square meters for LIG Category with basic civic facilities and infrastructure such as toilets, water, and electricity etc. The carpet area is defined as the area enclosed within the walls, actual area to lay the carpet. This area does not include the thickness of the inner walls.

Key Parameters for Credit Linked Subsidy Scheme

CriteriaEWS / LIGMIG-IMIG-II
Maximum Household Income (p.a.)Up to Rs. 6 LacsRs. 6 – Rs. 12 LacsRs. 12 – Rs. 18 Lacs
Maximum Property Area (carpet area)30 sq.m & 60 sq.m110 sq.m150 sq.m
Maximum Loan AmountRs. 6 LacsRs. 9 LacsRs. 12 Lacs
Maximum Tenure15 years15 years15 years
Interest Subsidy (% p.a.)6.50%4%3%
Subsidy AmountRs. 2.67 LacsRs. 2.35 LacsRs. 2.30 Lacs
Women Ownership on PropertyYesNot ApplicableNot Applicable
Beneficiary Family must not own a pucca house in IndiaApplicableApplicableApplicable

How to Apply for Credit Linked Subsidy Scheme (CLSS)

  • Apply for a home loan from a primary lending institution seeking subsidy.
  • If eligible for subsidy, your application will be forwarded to the Central Nodal Agency (CNA).
  • If it’s approved, the CNA will disburse the subsidy amount to the lender.
  • This will be credited to your account, thus reducing the total loan amount.
  • For instance, if your annual income is Rs 7 lakh and the loan amount is Rs 9 lakh, the subsidy will be Rs 2.35 lakh.
  • When this is deducted, the loan is reduced to Rs 6.65 lakh. You will pay EMI on this lowered amount.
  • If the loan amount is higher than the maximum amount eligible for subsidy, the excess will attract interest at the prevalent rate.

Affordable Housing in Partnership (AHP)

Under this scheme, the central government is offering financial assistance of Rs. 1.5 Lacs for each EWS house being built under Pradhan Mantri Awas Yojana with different partnerships by States/UTs/Cities either through their agencies or in partnership with the private sector including industries.

The States/UTs would be the one who will decide the upper ceiling on the sale price of an EWS house in rupees per square meter of carpet area in such projects with an objective to make them affordable and accessible to the intended beneficiaries, where the sale price would be fixed based on the project or the city. To make it more reliable, States and cities may extend other concessions applied by them such as their State subsidy, land at affordable cost, stamp duty exemption etc.

Under affordable housing, a single project will have minimum 250 houses and can consist mix of houses for different categories where 35% houses in the project must be for EWS category.

Beneficiary-led Individual House Construction / Enhancement

Under this scheme, the central government is offering assistance to individual families eligible under EWS categories to either construct new houses or enhance existing houses on their own to cover beneficiaries who are not eligible under any other schemes under Pradhan Mantri Awas Yojana. The beneficiary families can get a subsidy of Rs. 1.5 Lacs for construction of new houses under the mission. If the eligible beneficiary in residing in slums which are not being redeveloped can be covered under this component where the beneficiary must have a Kutcha house.

The beneficiary need to approach ULB (Urban Local Bodies) for the subsidy. State/UT or cities may also contribute financially for such individual house construction. Central assistance will be released to the bank accounts of beneficiaries identified in projects through States/UTs as per recommendations of State/UT. Though the funds from Central Government to State Governments would be released in lump-sum including assistance for this component, State Government should release financial assistance to the beneficiaries in 3-4 instalments depending on progress of construction of the house.

Beneficiary may start the construction using his own funds or any other fund and GoI assistance will be released in proportion to the construction by individual beneficiary. The last instalment of Rs. 30,000 of GoI assistance should be released only after completion of the house.

PMAY – Gramin (Rural)

Under Pradhan Mantri Awas Yojana – Gramin, the Indian government is obligated to build 1 crore houses in rural areas of the country, with the help of competent local housing authorities registered with central/state government in rural cities to fulfill the necessity of home to the local residents. The total cost of the houses being built under this programme is above Rs. 1.3 crores for the session 2018-2019 let alone. The programme is said to be target the availability of 60% of the total funds to SC/ST and 15% of the total funds to Minorities.

Feature of PMAY – Gramin

Construction of 1 Crore Houses

The government is aiming to build 1 crore pucca houses in rural area over a period of 3 years, session of 2016 to 2017, 2017 to 2018 and 2018 to 2019.

Enhanced House Size

Under this scheme, the size of the house is enhanced to 25 square meters including cooking area from 20 square meter in previous gramin housing schemes.

Increased Subsidised Amount

The government is now offering subsidised amount of Rs. 1.2 Lacs in plains as opposed to Rs. 70,000 and Rs. 1.30 Lacs in hilly states, difficult areas and IAP districts as opposed to Rs. 75,000 being offered under previous gramin (rural) housing schemes.

Loan Facility from Banks

Under the scheme, the government also provide the facility to avail loan of upto Rs. 70,000 from banks to build their dream house as per their requirements.

Eligibility Criteria for PMAY Gramin

  • An eligible beneficiary under PMAY – Gramin include all the homeless and family living in kutcha house with zero, one or two rooms.
  • The priority will be assigned to beneficiary families based on the houselessness followed by the number of rooms in the kutcha house, zero, one and two.
  • Beneficiary families should not have any adult member between the age of 16 to 59 years.
  • Beneficiary families headed by female should not have any adult male member between the age of 16 to 59 years.
  • Beneficiary families should not have any literate adult member of above 25 years age.
  • Beneficiary families who have any differently abled member or no able bodied adult member are also eligible.
  • Beneficiary family can be one landless, deriving the major part of their income from manual casual labour.
  • The house must be built by the beneficiary himself/herself or under his/her supervision, without engaging any contractor. In case the beneficiary is old or differently abled person, then the construction of the house will be taken up as a part of mason training program.
  • The construction of the house should be completed within 12 months from the date of sanction of the funds.

Finance

The government is offering Rs. 1.20 Lacs in plain areas and Rs. 1.30 Lacs in hilly states, difficult areas and IAP districts. Where a difficult area is defined as an area where the construction cost is higher due to poor availability of materials, poor connectivity, adverse geo-morphological and climatic conditions. Hilly states includes the states of J&K, Himachal Pradesh and Uttarakhand, whereas IAP districts are defined as the districts taken under integrated action plan of ministry of home affairs. The funds will be disbursed within 3 instalments.

Houses sanctioned under PMAY – Gramin will also be provided Rs. 12,000 additional aid for the construction of toilets from Swachh Bharat Mission or any other dedicated financing source.

Personal Loan Processing Charges

Processing fees are levied by the banks and financial institutions towards the expenses they have to make in order to process the funds and managing it throughout the loan tenure.

It includes, but not limited to, the cost of manpower and resources required to verify the borrower authentication, checking credit behaviour of the borrower along with some internal documentation a lender has to maintain in order to offer a personal loan.

The processing charges on a regular personal loan ranges from 1% to upto 3% of the loan amount. However, private financers tend to levy high processing charges which can range upto as high as 6.5% of the loan amount. Although, in the case of pensioners loan and senior citizens personal loans, the lender may waive the applicable charges.

Processing Charges levied by Banks/Financial Institution

Banks/FIsApplicable Processing Charges
SBI1% of the loan amount
HDFC BankUpto 2.5% of the loan amount
Rs. 1,999 to Rs. 25,000 for Salaried 
Rs. 2,359 to Rs. 88,500 for Self-Employed Professionals 
Rs. 1,999 for Balance Transfer to Salaried borrower. Minimum 0.99% of the loan amount for Personal Loan to Self-Employed Professionals.
Axis Bank1.5% to 2% of the loan amount
YES BankUp to 2.50% of loan amount
Min. Rs. 999
ICICI BankUp to 2.25% of the loan amount
Indusind BankUp to 2.50% of loan amount
Min. Rs. 1000 for Personal Loan and Min Rs. 250 for Personal Loan on Credit Card
HSBC BankUp to 2.5% of the loan amount
Max Rs. 2499
Kotak Mahindra BankUpto 2.5% of the loan amount
CitibankRs. 30,000
Standard Chartered BankZero to upto 2% of the loan amount
50% Concession on Processing Fee for Online Applications
Bajaj Finserv2.25% to 3% of the Loan Amount
For Salaried Personal Loan 
Upto 2% of the Loan Amount
For Doctors and Self-Employed Personal Loan 
2% of the Loan Amount
For Personal Loan to CAs and Engineers
Fullerton India1.5% to 6.5% of the Loan Amount
Capital FirstUp to 1.50% of the loan amount
Canara Bank1% of the loan amount or Min Rs. 50
For Personal Loan to Salaried & Teachers 
Nil
For Personal Loan to Pensioners
Tata CapitalUp to 2% of the loan amount
Min. Rs. 999
Aditya Birla Finance2% of the loan amount
IDBI BankUpto 2.50% of the loan amount
For regular Personal Loan 
Rs. 250
For Personal Loan on Credit Cards
PNB1.80% of the loan amount
For Salaried and Self-Employed Personal Loan 
Nil
For Personal Loan to Pensioners
Bank of Baroda2% of the loan amount
Min Rs. 1,000 to Max Rs. 10,000.
RBL BankUpto 2.50% of the loan amount
Bank of India2% of the loan amount
Min Rs. 1000 to Max Rs. 10,000 for regular Personal Loan 
Min Rs. 500 to Max Rs. 2000 for Personal Loan to Pensioners 
1% of the loan amount
For Personal Loan to Doctors
Bandhan Bank1% of the loan amount
Federal Bank0.50% of the loan amount
Min Rs. 500
Home CreditNil
Indiabulls Dhani1% to 5% of the loan amount
Indian Bank0.51% of the loan amount or Max Rs. 510
For Salaried Personal Loan 
Nil
For Pensioner loans upto Rs. 25,000. 
Rs. 255
For Pensioner loans above Rs. 25,000
Andhra BankUpto 2.75% of the loan amount
Syndicate Bank0.50% of the Loan amount or Min Rs. 500
For Salaried Personal Loan 
Zero to Rs. 200
For Personal Loan to Senior citizens
Corporation Bank1.50% of the loan amount.
Min Rs. 500
Dena Bank1% of the loan amount.


Personal Loan Top-Up

Top-up loan is an advance amount which you avail on top of your existing personal loan based on existing or increased interest rate and repay it within the monthly instalments of the existing loan, over a course of extended repayment period.

A borrower can avail personal loan top-up only after a period of 12 months from the date of disbursal of existing personal loan and if he/she is maintaining a satisfactory repayment track. However, some lenders allow borrowers to avail additional funds only after 6 months from the disbursal.

Personal Loan Top-Up at a glance
PurposeMedical Emergencies, 
Vacation, 
Wedding, 
Higher Studies, 
Home Renovation, 
Debt Consolidation, 
Purchase of Costly Consumer Products etc.
Maximum AmountUpto 100% of Existing Loan
Interest Rate10.99% – 24%
Tenure12 to 24 months usually
Lock-in Period12 Months usually

Personal Loan Top-Up Offers

Banks/FIsInterest RatesMax Loan AmountWhen to Apply?
SBI12.15%Rs. 15 LacsAfter 12 months
HDFC Bank11.39% – 20.99%Rs. 50 LacsAfter 12 months
Axis Bank15.50% – 24%Rs. 15 LacsAfter 12 months
ICICI Bank11.25%Rs. 20 LacsAfter 12 months
YES Bank10.75% – 15.90%Rs. 25 CroresAfter 6 months
Citibank12% – 22%Rs. 30 LacsAfter 12 months
Tata Capital11.49% – 19%Rs. 25 LacsAfter 12 months
Kotak10.99% – 24%Rs. 15 LacsAfter 9 months

Advantage of Personal Loan Top-Up

Easy Access to Additional Funds

Availing a top-up loan gives you the easy access to additional funds in need. And, the borrower can utilise the funds for any purpose just like regular personal loan.

Minimal Documentation

Since it is a top-up on existing loan account, the borrower doesn’t need to go through the entire documentation process again. All he/she need to provide is receipts of existing loan EMI repayments and KYC information.

No Guarantor/Security

Since top-up loan is an add-on to the existing loan account, the banks and financial institutions doesn’t ask for any third party guarantee or collateral security.

Increased Tenure

In case of top-up loans, banks and financial institutions tends to increase the tenure of existing loan. Hence, borrower can easily repay his loan without struggling with increased EMI amount or different EMIs.

Disadvantages of Personal Loan Top-Up

Increase in Total Loan Cost

Due to the additional funding, the borrower end up paying more towards the interest amount applicable on personal loan, which eventually increase the total cost of the loan.

Eligibility Criteria

  • Applicant must be an existing borrower in the same bank.
  • Applicant must have clean repayment track with no defaults.
  • Applicant must have repaid 12 EMIs (6 EMIs in YES Bank and 9 EMIs in Kotak) before applying for top-up.

Documentation

  • Receipts of existing loan EMIs.
  • KYC information

Interest Rates on Savings Account

The Interest rate provided on a savings account varies depending on which bank you are holding your savings. Moreover, the banks usually tends to provide 0.50% higher interest rate to senior citizens holding savings accounts in their banks, where sweep-out facility is applicable.

Apart from the banks, one can also open a savings account at any of the Indian Post office with interest rate earnings of 4% per annum.

Savings Account Interest Rate by Different Banks

BanksAnnual Interest Rates
HDFC Bank3.50%
For Account Balance less than Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs to less than Rs. 500 Crs. 
5.77%
For Account Balance above Rs. 500 Crs.
SBI3.00%
For Account Balance above Rs. 1 Lac 
3.50%
For Account Balance upto Rs. 1 Cr. 
4.00%
For Account Balance above Rs. 1 Cr.
ICICI Bank
Upto 7.50% under Saving Accounts with Money Multiplier Plan
3.50%
For Account Balance less than Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
Axis Bank
Upto 7.10% under ASAP Instant Account
3.50%
For Account Balance less than Rs. 50 Lacs 
4.00%
For Account Balance Rs. 50 Lacs to less than Rs. 100 Crs. 
5.50%
For Account Balance above Rs. 100 Crs. to less than Rs. 200 Crs. 
6.00%
For Account Balance above Rs. 200 Crs and above.
Citibank4.00% – 4.50%
Standard Chartered Bank
Upto 7.10% under eSaver Account
3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
YES Bank5.00%
For Account Balance upto Rs. 1 Lac 
6.00%
For Account Balance above Rs. 1 Lac to upto Rs. 1 Cr. 
6.25%
For Account Balance above Rs. 1 Cr to upto Rs. 100 Crs.
Kotak4.00%
For Account Balance upto Rs. 1 Lac 
6.00%
For Account Balance above Rs. 1 Lac to upto Rs. 1 Cr. 
5.50%
For Account Balance above Rs. 1 Cr
Canara Bank3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
PNB
Upto 7.90% under PNB Shikshak Sweep Account
3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
City Union Bank4.00%
Central Bank of India3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
Bank of India
Upto 8.25% under BOI Savings Plus Account
3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
Bank of Baroda
Upto 6.55% under Super Savings Account
3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
Bank of Maharashtra3.50%
For Account Balance upto Rs. 25 Lacs 
4.00%
For Account Balance above Rs. 25 Lacs
IDBI Bank3.50%
For Account Balance upto Rs. 25 Lacs 
4.00%
For Account Balance above Rs. 25 Lacs
IDFC First6.00%
For Account Balance upto Rs. 1 Lac 
7.00%
For Account Balance above Rs. 1 Lac to upto Rs. 250 Crs. 
8.50%
For Account Balance above Rs. 250 Crs.
Indusind Bank4.00%
For Account Balance upto Rs. 10 Lacs 
5.00%
For Account Balance above Rs. 10 Lacs to upto Rs. 1 Cr. 
6.00%
For Account Balance above Rs. 1 Cr.
Bandhan Bank4.00%
For Account Balance upto Rs. 1 Lac 
6.00%
For Account Balance above Rs. 1 Lac to upto Rs. 10 Crs. 
6.55%
For Account Balance above Rs. 10 Crs. to upto Rs. 50 Crs. 
7.00%
For Account Balance above Rs. 50 Crs.
Federal Bank3.50%
For Account Balance less than Rs. 50 Lacs 
4.00%
For Account Balance Rs. 50 Lacs to less than Rs. 10 Crs. 
6.30%
For Account Balance Rs. 10 Crs. to less than Rs. 25 Crs. 
6.51%
For Account Balance Rs. 25 Crs. to less than Rs. 250 Crs. 
7.20%
For Account Balance of Rs. 250 Crs. and above.
Andhra Bank3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
Allahabad Bank
Upto 6.25% under AllBank Shakti Saving Account & Upto 6.50% under AllBank Savi-fix Account
3.50%
For Account Balance less than Rs. 40 Lacs 
4.00%
For Account Balance of Rs. 40 Lacs and above
Indian Bank
Upto 6.50% under SB Platinum Account
3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs
Indian Overseas Bank3.50%
For Account Balance upto Rs. 25 Lacs 
4.00%
For Account Balance above Rs. 25 Lacs
RBL Bank5.50%
For Account Balance less than Rs. 1 Lac 
6.00%
For Account Balance Rs. 1Lac to upto Rs. 10 Lacs 
6.75%
For Account Balance Rs. 10 Lacs to upto Rs. 5 Crs.
Corporation Bank3.50%
For Account Balance less than Rs. 50 Lacs 
4.00%
For Account Balance of Rs. 50 Lacs and above.
Abhyudaya Cooperative Bank4.00%
Abu Dhabi Commercial Bank4.00%
OBC3.50%
Syndicate Bank3.50%
For Account Balance upto Rs. 25 Lacs 
4.00%
For Account Balance above Rs. 25 Lacs.
Union Bank of India
Upto 6.75% under Union Flexi Savings & Union Flexi Plus Savings Account
3.50%
For Account Balance upto Rs. 25 Lacs 
4.00%
For Account Balance above Rs. 25 Lacs.
United Bank of India3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs.
Punjab & Sind Bank3.50%
For Account Balance upto Rs. 20 Lacs 
4.00%
For Account Balance above Rs. 20 Lacs.
UCO Bank3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs.
Catholic Syrian Bank3.50%
For Account Balance less than Rs. 1 Lac 
4.00%
For Account Balance of above Rs. 1 Lac to upto Rs. 50 Lacs 
5.00%
For Account Balance of above Rs. 50 Lacs to upto Rs. 10 Crs. 
6.00%
For Account Balance of above Rs. 10 Crs. to upto Rs. 20 Crs. 
6.75%
For Account Balance of above Rs. 20 Crs.
DCB Bank4.00%
For Account Balance less than Rs. 1 Cr 
6.25%
For Account Balance of Rs. 1 Cr. to less than Rs. 5 Crs. 
6.50%
For Account Balance of Rs. 5 Crs. and above.
Dhanlaxmi Bank3.50%
For Account Balance upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs.
Jammu & Kashmir Bank3.50%
HSBC Bank3.50%
Karnataka Bank3.00%
For Account Balance upto Rs. 1 Lac 
3.50%
For Account Balance above Rs. 1 Lac to upto Rs. 50 Lacs 
4.00%
For Account Balance above Rs. 50 Lacs to upto Rs. 1 Cr. 
5.00%
For Account Balance above Rs. 1 Cr.
Karur Vysya Bank4.00%
Lakshmi Vilas Bank4.00%
For Account Balance upto Rs. 1 Lac 
5.25%
For Account Balance above Rs. 1 Lac to upto Rs. 5 Lacs 
6.25%
For Account Balance above Rs. 5 Lacs to less than Rs. 10 Crs. 
6.50%
For Account Balance of Rs. 10 Crs. and above.

How to Calculate Interest Rates on Savings Account?

The calculation of the interest rate on a savings account is done on a daily closing balance and paid into the account on a quarterly or half-yearly basis.

  • Daily Ending Balance is the total amount available in your savings account at the end of a day.
  • Rate of interest is as provided by the bank / post office.
  • 365 denotes the total number of days in a financial year. If it’s a leap year, then 366 is applicable in place of 365 for calculation.

If you’re holding a savings account with sweep-in and sweep-out facility, then the rate of interest applicable on excessive amount above the preset limit will be calculated based on the interest rate offered by the bank for fixed deposit based on the number of days the amount is being kept in the fixed deposit.

However, it comes with a limit and most of the banks offer maximum 180 days period for interest on excessive amount under sweep out facility.

Tax Deductions on Savings Accounts Interest Earning

The interest amount that you earn in your savings account is considered to be income from other sources, and any interest savings earned in a financial year is taxable.

However, a savings account holder can claim tax benefits of maximum Rs. 10,000 against total interest amount earned under Income Tax Section 80TTA.

Tax Benefits for NRIs on Housing Property

NRIs who file income tax returns in India are eligible to enjoy some of the tax benefits offered by the Government of India under the Income Tax Act of 1961. These include deductions on home loan stated under sections 24, 80C and 80EE of the act. Here we are providing an insight of what these legislations have to offer for the non-resident citizens.

Defining an NRI

NRI is a broad term used collective for Indian citizens who do not reside in India on a regular basis. It means that these citizens are residing outside the country for a considerable part of the year. According to the Income tax Act, 1961 a person is eligible to qualify as an Indian Citizen if he:

  • resides for at least 182 days in India in the current financial year (April 1 to March 31) or
  • Has resided for at least 365 days in the last four years and at least 60 days in the present year in India.

The citizens, who do not satisfy either of the two conditions mentioned above are considered as NRIs.The act does not independently define an NRI. An NRI is defined in The Foreign Exchange Management Act, 1999 (FEMA) as an Indian citizen who is not a resident of India and also, who is a resident in some other country outside of India.

NRIs and Home Loans


An NRI who has been a salaried employee outside India for not less than one year or who has been self-employed for not less than three years is eligible to apply for a home loan in India. The amount sanctioned for the home loan, its tenure and rate of interest will all depend upon a borrower’s customer profile, his salary and age age at the time of maturity of the home loan. Normally, the rate of interest that is offered to NRIs by Indian banks is higher than an interest rate offered to the ordinary residents of the country. Also, the duration for which the loan is sanctioned is also shorter compared to the residents, keeping in mind the fact that the loan paying capacity of NRIs is higher than the ordinary residents.

Benefits up to Rs. 2 Lakhs under Section 24

This section provides for tax deductions that can be claimed on the payment of interest over home loans. The beneficiary can file the claim on the completion of construction. The benefits can provide a tax exemption of 30% and extend up to Rs. 2 lakhs per year. However, the maximum amount of annual deduction gets lowered to Rs. 30,000 in case:

  • The loan was borrowed before April 1, 1999
  • The construction does not get completed within five years from the end of the financial year in which the loan was borrowed.

Benefits up to Rs. 1.5 Lakhs under Section 80C

The section 80C of the Income Tax Act deals with the deduction of taxes available on the repayment of principal amount. Any person including NRIs can avail an annual tax deduction of up to Rs. 1.5 lakhs starting from the year of possession of property provided that she does not sell it for the first five years. If the property is sold within five years, all the benefits that were availed will get reversed and will be charged in the year of selling.

This section further provides for tax deductions on the amount paid as registration charges and stamp duty at the time of buying. The claim for such deductions shall be filed in less than one year of buying the property. However, the total benefits availed under the section shall not cross the cap of Rs. 1.5 lakhs. That means that the deductions on registration charges will be provided only and only if the tax deduction availed on repayment of principal amount is less than Rs. 1.5 lakhs.

Additional Benefits of up to Rs. 50,000 for First Time Buyers

Any citizen who is buying a residential property for the very first time in India is eligible to enjoy an additional tax deduction of up to Rs. 50,000 every year under Section 80EE of the Income Tax Act. These benefits are available for those individuals who have taken a loan between the time period extending from April 1, 2016 to March 31, 2017 and can be enjoyed till the loan is repaid completely.

Benefits up to Rs. 2 Lakhs During the Pre-Construction Phase

The act also provides for a yearly tax deduction of up to Rs. 2 lakhs for interest payments that are made while the house was still under construction. For enjoying these benefits, claims have to be filed in five equal instalments starting from the year of completion of construction and with not more than one claim filed in one year provided the construction is completed within five years from the end of the financial year during which the loan is borrowed. If somehow, the construction is not completed within the stipulated five year period.

No Taxation on Self-Occupied Property

If any property occupied by an NRI is used for family purposes, it is considered as self-occupied and is exempted from taxation. Earlier if an NRI would own more than one self-occupied properties then only one would be considered as self-occupied. All the other houses would be considered as rental property and tax had to be paid on such properties based upon a notional rent. However, the interim budget that was presented in parliament by Finance Minister Piyush Goyal in February 2019 has provided to consider even the second housing property as self-occupied. The notional rent provision would now be imposed from third property onwards.

Less Taxation on Purchase of Property from a Resident

If an NRI purchases a residential property from a resident citizen, he is required to pay taxes at the rate of 1% for properties valued Rs. 50 Lakhs or more. On the other hand, if the property is purchased from a non-resident tax needs to be paid at 20% even if the property is valued less than Rs. 50 lakhs. Thus, an NRI can save taxes by choosing to buy property from the residents.

It is to be noted that all the above benefits can be enjoyed only and only if the NRI person claiming them has filed his tax returns in India. So ensure that you have filed your tax returns in India and enjoy tax benefits at par with the resident tax-payers of the country.

Home Loan Tax Benefits

So as to provide relief to the homeless and to boost construction activity in the country, the government of India has allowed some deductions on home loans under Income tax Act 1961. Under it different set of rules apply depending on the number of houses owned by an owner.

Home Loan Income Tax Benefits Section 80C, 24 and 80EE

In case of Owning a Single House:

Deduction under section 80-C of the Income tax act, on Principal repayment on home loan:

Normal deduction of income of Rs. 1.5 lakhs per year as allowed under Section 80C of the Income tax act, is available on principal repayment made on home loan EMIs paid during the financial year. All the expenses incurred on the process of transferring of the property like stamp duty, registration charges and other expenses related directly to the transfer are also allowed to be added to this principal repayment amount, for the purpose of deduction under Section 80C, of course, subject to a maximum deduction amount of Rs.1.5 lakhs. But the claim on these expenses have to be made in the same year when these expenses have actually been made. However, this deduction is subject to the underlined conditions;

  • The home loan must be for the purchase of a new built up house or for construction of a new house building.
  • There is an underlying condition that such property on which such deduction has been claimed has to be retained for a minimum period of five years from the end of the financial year, in which you purchased the built up house property or completed the construction and took possession of the property. In case you sell such property before completing these mandatory five years, all the deductions claimed earlier shall be reversed and added back to your income of the year in which the property is transferred.

Tax deduction under section 24, of income tax act in India on interest paid on Home loan:

The taxpaying house owner can claim a deduction of up to Rs. 2 lakhs on the interest paid in the financial year, on their home loan interest, in case they own only one house and now after the interim budget of 2019 it has been proposed to be extended to two houses, irrespective of whether one of these or both of these two houses are self occupied or vacant. However, if you have rented out both or any of the two, the entire interest paid on the home loan is allowed as a deduction.

Deduction under section 80EE of Income tax act on interest paid on Home- loan:

An additional deduction of rupees fifty thousand is allowed if you are first-time homeowners. Section 80EE recently added to the Income Tax Act, provides a first-time homeowners tax benefit of up to Rs. 50,000 on the interest paid on home loan. If you are able to satisfy the conditions of both Section 24 and Section 80EE, both the benefits shall apply consecutively to you. First, exhaust your limit under section 24 and then go on to claim the additional benefits under section 80EE. Therefore, this deduction is in addition to the Rs 2lakh limit under section 24. This deduction can be claimed till total of the loan is repaid.

There are some conditions to claim this benefit under section 80EE:

  • This house has to be the first and only house property owned by you.
  • The total value of this house should not be more than Rs. 50 lakhs.
  • The loan amount should not be more than Rs. 35 lakhs.
  • The loan has to be taken from some scheduled bank or a Housing Finance Company.

In case of Joint Owners / Co-Borrowers:

Each of the joint owners, who are also co-borrowers of home loan, can independently claim a deduction on interest paid on the home loan up to Rs. 2 lakhs as allowed under Section 24 of the Income tax act and deduction allowed on principal repayments, including stamp duty and registration charges, building insurance under Section 80C within the overall limit of Rs. 1.5 lakhs, for each of the joint owners. These deductions are to be claimed in the same ratio as that of their ownership share in the property.

Simply being co-borrower is not sufficient to be entitled to claim the allowed deductions on the income tax, you have to be a joint owner of the house property also. For example the property is owned by a parent and he together with his son takes a loan where both sign as co-borrowers. Even if the loan is totally repaid only by the son yet the tax benefits on the home loan cannot be claimed by the son.

Deduction of Interest vs. Status of Construction:

The period from the date of disbursement of loan until construction of the house is completed is called pre-construction period. This deduction on home loan interest cannot be claimed during this pre-construction period.

  • Interest paid during this time can be claimed as a tax deduction in the next five assessment years in equal instalments, starting from the year in which the construction of the property is completed.
  • It can be claimed only from the assessment year the construction is completed. While in case of purchase of a constructed building, the allowed deduction can be claimed from the day the building is purchased and occupied.
  • In case the construction of the residential building is not completed within five years from the end of the financial year in which the loan was taken, the allowance of the deduction on interest gets limited to Rs. 30,000 only.

Regarding House Rent:

Scenario 1:

One is living in a rented house but one’s own house with a home loan running on it, is lying vacant.

Scenario 2:

One lives in a rented house and one’s own house is also let out:

In both cases, one can claim rent he is paying for the rented house as well as deductions as allowed under section 24, 80C and 80EE of Income tax act.

In case of ownership of a single house, these deductions can be claimed whether the house is self occupied, vacant or rented. Now after the interim budget 2019, this benefit has been extended to, in case of owning of even two houses by the same owner or any two houses in case of ownership of multiple houses, by the same owner.

In case the House is Let Out:

However, in case, one or both of the houses are even let-out, the total rent received is added to the owner’s main income however a standard deduction of 30% of the annual net value which means the total rent received during the assessment year, is allowed. This deduction is meant to cover, annual maintenance, fittings, building insurance etc., irrespective of the actual expenses incurred. However, the entire interest on housing loans of the rented property can be claimed as a deduction from the total income and there is no upper limit on the amount of interest that can be claimed as a deduction, under section 24 of the Income tax act.

Significant Budget Amendment in 2017:

If in case of a self occupied house, the interest paid on home loan exceeds the deduction on interest of Rs. 2 lakhs, as allowed under section 24 and Rs. 50,000 as allowed under section 80EE, in case it is applicable, the difference between the actual interest paid and the deductions allowed, is called the net loss on house property. Similarly in case of a let out properties, if the actual interest paid on home loan exceeds the total rent received in the year plus standard deduction of 30% as allowed on the total rent received in a year plus deductions as allowed under section 24 and 80EE. The difference between these two is termed the net loss on house property head in the income tax return. Till FY 2016-17, such loss under the head house property could be set off against other heads of income without any limit. However, by an amendment in 2017 by the government, from FY 2017-18 onwards, such set off of losses has been restricted to Rs. 2 lakhs per financial year. The balance could be set off, in consecutive eight years but the cap of Rs. 2 lakhs remaining for the subsequent years. Such loss can be adjusted only against income chargeable to tax under the head “Income from house property”.

In case of the Owner being a NRI:

All the deductions under section 80C or section 24 of the income tax acts and the standard deduction of 30% are also allowed to the NRI’s , in the same manner as Indian residents can do provided they file their income tax returns in India.

In case One Owns Multiple Houses:


However, in case of an individual owning more than one house, a different set of rules apply.

Scenario 1 (In case none of the properties is let out):

Current provision versus provision as proposed in the interim Budget 2019.

Earlier only one house property was considered to be as a self-occupied house property and normal deductions as allowed under section 80C and section 24 of the Income tax acts, as already discussed were allowed. But in case of more than one house properties, the second or third house despite being lying vacant were considered deemed rented property and a notional rent depending upon the quality of construction and their locality, were being assessed by the Income tax authorities and those rents were included in the owner’s main income and deductions towards interest repayment, which to make your claims easy, came with no cap, regardless of the construction status of the property. But, deductions under section 80C towards the principal repayment, could only be claimed on one of the houses, but the taxpayer is free to choose any of the properties as self-occupied house property based on his own discretion.

For the FY 2019-20 and onwards, after this interim budget proposals, you may have as many properties in your name, but government shall now consider two of your properties to be your ‘self-occupied’ properties in place of one. However, your maximum deduction as allowed under Section 80C and section 24 remains Rs. 1.5 lakhs and Rs. 2 lakhs respectively remains the same after aggregation on account of home loans of both the properties. The third and more houses in your name are categorized as deemed rented out. Here, the assumed rent income from these properties will be considered as your taxable income. The amount is decided based on the property rent rates of that area suitable for your property. The taxpayer still remains at liberty to choose any two properties as self-occupied house properties based on whichever property fetches the maximum benefit. The uncapped deductions on account of interest paid on third or subsequent houses can be deducted to the full but deduction on account of principal repayment under section 80C on the third or subsequent houses is not allowed.

Scenario 2 (In the case of Rented Houses):

As for as the rented houses are concerned, that might be first, second or third or so, the total rent received is added to the owner’s main income however a standard deduction of 30% of the annual net value which means the total rent received during the assessment year. Under Income tax act, it is meant to cover maintenance, building insurance premium of the buildings. However, the entire interest on housing loans of all the rented properties can be claimed as a deduction from the total income and there is no upper limit on the amount of interest that can be claimed as a deduction.

However, if the computation of rent and interest in respect of loans taken for all the properties in aggregate, results in loss from the house properties, then maximum of Rs. 2 lakhs of loss can be set-off against other heads of income and balance can be carried forward for 8 assessment years but that set off loss cannot be more than Rs. 2 lakhs per assessment year.Impact of amendment of 2017 and this proposal of 2019 on your tax savings.

The amendment of exempting income from two house properties may lead to lesser deduction of interest and corresponding amendment of 2017, restricting deduction of loss on house property only up to 2lakh a year, may lead to a taxpayer paying more tax in later years from the two self-occupied properties than what was paid before the Budget allowed total interest paid on a home loan on the second house was allowed a total deduction. This may happen in cases where the rentable value of the second property is less than the interest paid by the taxpayer for such property. “In such cases, prior to Budget, the taxpayer would have claimed deduction of the entire interest paid in respect of such property and would have set-off or carried forward the loss from such property. However, post-amendment, since the deduction of interest will be restricted to Rs 2 lakh in aggregate, the taxpayer will not be eligible to claim set-off or carry forward of such loss and thereby resulting in higher taxes.

Things you should know

  • Interest on housing loan can be claimed as a deduction only if the house property is constructed or purchased and ready to be occupied.
  • Interest paid prior to completion of construction of the property can also be claimed as a deduction over 5 years from the year of completion of construction. When the construction gets completed a completion certificate is issued after which you will also have to get an occupancy certificate, which is a must.
  • In case of property held jointly, the income from house property to be taxed in the hands of each co-owner is determined based on the deduction, you need to submit the home loan interest certificate that shows the ownership share, borrower details and EMI payments bifurcated into interest and principal.
  • Even if a house property is let out only for part of a year, then the house property would be considered as let out property for the entire year.