Budget 2025: Govt to bring Rs 2.67 lakh credit-linked subsidy back under Pradhan Mantri Awas Yojana for all?

As the Union Budget 2025-26 approaches, home loan borrowers across India are hopeful that Finance Minister Nirmala Sitharaman will introduce policies that ease the financial burden on homeowners and make homeownership more accessible. Among many expectations, homebuyers hope the government reintroduces the Credit Linked Subsidy Scheme (CLSS) for MIG category also under the Pradhan Mantri Awas Yojana, under which a subsidy of up to Rs 2.67 lakh was offered to eligible beneficiaries.

What were the benefits under Credit Linked Subsidy Scheme (CLSS) of PMAY?

Homebuyers were offered an interest subsidy of up to 2.67 lakh per house. This amount was admissible for beneficiaries of Economically Weaker Section (EWS)/Low Income Group (LIG), Middle Income Group (MIG)-I and Middle Income Group (MIG)-II seeking housing loans from banks, Housing Finance Companies, and other such institutions for acquiring/constructing houses.

Homebuyers were offered interest subsidies of 6.5%, 4%, and 3% on loan amounts up to Rs 6 lakh, Rs 9 lakh, and Rs 12 lakh, admissible for a house with a carpet area of up to 60, 160, and 200 Sq/meter for EWS/LIG, MIG I, and MIG II, respectively.

When did the government close the CLSS scheme?

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

Also read: Budget 2025: Govt may replace Income Tax Act, 1961 with THIS new law! What it means for taxpayers

Experts and real estate industry leaders’ expectations from Budget 2025

Experts and industry leaders have shared their expectations for the upcoming budget, highlighting key areas that could significantly benefit homebuyers, especially those in the middle-income group.

Tax Deductions and Incentives: A key expectation

Atul Monga, CEO & Co-Founder of BASIC Home Loan, believes that home loan borrowers are anticipating policy changes that would make homeownership more affordable. “Home loan borrowers are optimistic that policy changes in the Budget 2025 would ease their financial burden and make homeownership more accessible and affordable,” he said.

He emphasised that an increase in the tax deduction limit on home loan interest from Rs 2 lakh to Rs 5 lakh under Section 24(b) would provide significant relief. Additionally, Monga suggested that raising the Section 80C limit from Rs 1.5 lakh to Rs 2.5 lakh, along with a dedicated sub-limit for home loan principal repayment, would further incentivise homebuyers.

Monga also pointed out that many homebuyers, particularly those from the middle-income bracket, are hoping for the reintroduction of the Credit Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana. “Revised income and loan criteria to make housing more affordable” is a key demand, he said. Furthermore, a reduction in GST on under-construction properties and affordable housing would also make homes more accessible, he added.

Flexibility in tax framework and revised deductions

Avnish Arora, Executive Director at Forvis Mazars in India, echoed the sentiment for revising the tax framework to better support middle-class taxpayers. He pointed out that the Rs 2,00,000 cap on home loan interest deductions, which was set in 2019, has not kept pace with inflation and rising property prices. “The Rs 2,00,000 cap on home loan interest deductions for self-occupied properties, set in 2019, has not kept pace with inflation and rising property prices,” Arora said. To support middle-class taxpayers, he urged for an increase in the home loan interest deduction limit and a revision to the Section 80C limit to reflect current economic conditions.

Also read: Budget 2025: Old Tax Regime to be completely scrapped?

Reforming rental property taxation

CA Anand Bathiya, President of the Bombay Chartered Accountants’ Society (BCAS), proposed changes to rental property taxation. He suggested that rental income from let-out property should be taxed based on the actual rent received or receivable rather than the ‘annual value’ determined under section 23. “It is proposed that rental income from actually let-out property should be taxed to the extent of actual rent received or receivable,” Bathiya explained. He also recommended abolishing the concept of ‘deemed let-out’ properties, as it burdens property owners with taxes despite no rental income being received.

Industry status for real estate and increased budgetary allocations

Tejas Patil, Founder of Arbour Investments, highlighted the need for reforms to unlock the full potential of the real estate sector, which contributes approximately 7.3% to India’s GDP and is projected to reach 13% by 2025. “The real estate sector is currently contributing approximately 7.3% to India’s GDP and projected to reach 13% by 2025,” Patil noted. He urged for the granting of ‘Industry’ status to real estate, which could help streamline access to institutional finance, reducing borrowing costs and enhancing transparency.

Patil also called for an increase in the tax exemption limit for housing loans from Rs 2 lakh to Rs 3 lakh, a move that could make homeownership more affordable for the middle-income segment. He also suggested amendments to GST regulations, including allowing input tax credit on under-construction properties, which would reduce costs for developers and end-users alike. Moreover, Patil emphasized that reducing the GST rate on cement from 28% to 18% would lower construction costs and promote growth in the housing sector.

Infrastructure development and private investment

In addition to fiscal policy changes, Patil urged the government to prioritise infrastructure development, particularly in tier 2 and tier 3 cities, which could stimulate the residential real estate market. “Infrastructure development should remain a priority, with increased budgetary allocations for urban renewal projects and connectivity initiatives,” Patil said. He also called for greater private investment in the sector through Alternative Investment Funds (AIFs), along with tax incentives for institutional investors to ensure liquidity and enable ambitious real estate projects.

Also read: Income Tax Rules: 5 major changes in the last 6 months every taxpayer should know!

Conclusion

With various experts calling for policy changes that address the rising cost of homeownership and provide relief to borrowers, the upcoming Budget 2025 is seen as a crucial opportunity to boost the housing market and make homes more affordable. As middle-income buyers, especially in tier 2 and tier 3 cities, continue to face financial challenges, these proposed changes could prove vital in making the dream of homeownership a reality for many.