The Prime Minister’s Employment Generation Programme (PMEGP) is one of the most popular government subsidy schemes in India for new entrepreneurs and micro enterprises. Implemented by the Khadi and Village Industries Commission (KVIC), this scheme provides financial assistance in the form of a subsidy combined with a bank loan to help individuals start manufacturing or service-based businesses.
If you are planning to apply under the PMEGP scheme, it is very important to understand how to calculate PMEGP loan subsidy and interest. Proper calculation helps you estimate your actual loan burden, EMI, and repayment planning.
What is the PMEGP loan structure?
Before calculating subsidy and interest, you must understand how the PMEGP loan is structured.
Under PMEGP:
- The bank provides 90% to 95% of the project cost
- The beneficiary contributes 5% to 10% margin money
- The government provides 15% to 35% subsidy (called Margin Money Subsidy)
The subsidy is adjusted in the loan account after a lock-in period, and the remaining amount becomes your actual repayable loan.
PMEGP Subsidy Percentage (Category Wise)
The subsidy depends on:
- Category (General / Special)
- Location (Urban / Rural)
1. For General Category
- Urban Area: 15%
- Rural Area: 25%
2. For Special Category (SC/ST/OBC/Minority/Women/Ex-Servicemen/PH)
- Urban Area: 25%
- Rural Area: 35%
Step-by-Step: How to Calculate PMEGP Loan Subsidy
Let us understand this with a practical example.
Example 1: Rural Area – Special Category
Assume:
- Project Cost = ₹20,00,000
- Category = Special
- Location = Rural
Subsidy Percentage = 35%
Step 1: Calculate Subsidy Amount
Subsidy = 35% of ₹20,00,000
= ₹7,00,000
Step 2: Calculate Beneficiary Contribution
Special Category contribution = 5%
5% of ₹20,00,000
= ₹1,00,000
Step 3: Calculate Bank Loan Amount
Project Cost – Beneficiary Contribution
= ₹20,00,000 – ₹1,00,000
= ₹19,00,000
Out of this ₹19,00,000:
- ₹7,00,000 will be adjusted as subsidy
- Remaining ₹12,00,000 becomes effective loan
So, you repay interest only on ₹12,00,000 (after subsidy adjustment).
Example 2: Urban Area – General Category
Assume:
- Project Cost = ₹10,00,000
- Category = General
- Location = Urban
Subsidy = 15%
Step 1: Subsidy Calculation
15% of ₹10,00,000
= ₹1,50,000
Step 2: Beneficiary Contribution
General category contribution = 10%
10% of ₹10,00,000
= ₹1,00,000
Step 3: Bank Loan
₹10,00,000 – ₹1,00,000
= ₹9,00,000
Out of ₹900,000:
- ₹150,000 subsidy
- ₹7,50,000 effective loan
You repay ₹7,50,000 + interest.
How PMEGP Interest is Calculated
PMEGP does not offer zero-interest loans. The interest rate is decided by the bank as per RBI guidelines.
Generally, interest rate ranges between:
- 8% to 12% per annum
(depending on bank and credit profile)
The interest is calculated on the effective loan amount after subsidy adjustment.
EMI Calculation Formula
EMI =
P × R × (1+R)^N / [(1+R)^N – 1]
Where:
- P = Loan amount
- R = Monthly interest rate
- N = Number of months
EMI Example Calculation
Let us assume:
- Effective Loan = ₹12,00,000
- Interest Rate = 10% annually
- Tenure = 5 years (60 months)
Monthly interest rate = 10% ÷ 12
= 0.83%
Approximate EMI = ₹25,500 to ₹26,000 per month
Total repayment over 5 years ≈ ₹15.3 lakh
Total interest paid ≈ ₹3.3 lakh
Important Points PMEGP Subsidy
Subsidy is not given directly to you in cash. It is:
- Kept in a separate account (TDR)
- Locked for 3 years
- Adjusted only if unit runs successfully
If the business closes before the lock-in period, the subsidy may be recovered.
Maximum Project Cost Under PMEGP
- Manufacturing Sector: ₹50 lakh
- Service Sector: ₹20 lakh
Subsidy is calculated on approved project cost only.
How to Reduce Interest Burden
To reduce EMI and interest:
- Choose shorter tenure if cash flow is strong
- Maintain good CIBIL score
- Prepare strong project report
- Use proper CMA data for the bank.
Banks approve better rates if financials are strong and realistic.
Common Mistakes While Calculating PMEGP Loan
Many applicants make these errors:
- Calculating subsidy on full loan amount instead of project cost
- Ignoring beneficiary contribution
- Assuming subsidy reduces EMI immediately
- Not considering working capital properly
Always calculate carefully before applying.
Conclusion
Understanding how to calculate PMEGP loan subsidy and interest is very important before applying under the Prime Minister’s Employment Generation Programme. The subsidy percentage depends on your category and location, while interest is charged by the bank on the effective loan amount after subsidy adjustment.
By calculating subsidy correctly, planning margin money, and estimating EMI properly, you can avoid financial stress and run your business smoothly. Always prepare a realistic project report and financial projections to ensure easy approval and sustainable repayment.
If you need help calculating your PMEGP loan eligibility or preparing a proper financial report, professional guidance can make the approval process faster and smoother. You can contact us at +91 9001329001 for any query or if you require our services to prepare a project report or a bank loan.
FAQ
1. How is the PMEGP loan subsidy actually adjusted in the bank account?
Under the PMEGP scheme, the subsidy is not directly credited to your savings account. Instead, it is kept in a Term Deposit Receipt (TDR) by the bank for a lock-in period of three years. If your business operates successfully during this period, the subsidy amount is adjusted against the outstanding loan, thereby reducing your principal liability.
2. On which amount is interest calculated in a PMEGP loan?
Interest is calculated by the bank on the sanctioned loan amount as per banking norms. However, after the subsidy is adjusted post lock-in period, the effective principal reduces. Ultimately, your real financial burden depends on the net loan amount remaining after deducting the government margin money subsidy.
3. Can I increase my project cost to get a higher subsidy under PMEGP?
No, you cannot artificially increase project cost just to get a higher subsidy. Banks carefully verify your project report, quotations, and feasibility. Subsidy is calculated only on the approved and realistic project cost. Inflated project values may lead to rejection or delay in loan approval.
4. What happens if I close my business before the lock-in period?
If the business is discontinued before the mandatory three-year lock-in period, the subsidy amount may be withdrawn by the bank. In such cases, the borrower becomes liable to repay the full loan amount without subsidy benefit, which increases the financial burden significantly.
5. Is the PMEGP subsidy available for existing businesses?
PMEGP subsidy is strictly meant for new projects and first-time entrepreneurs. Existing units that are already operational are not eligible under this scheme. The objective of PMEGP is to generate new employment opportunities, not to expand or refinance old businesses.
