Govt of India’s Waiver of Compound Interest Scheme

2 min read
Details of Government of India's waiver of compound interest scheme for loans below INR 2 crore taken before 29th Februaury'20.

Waiver of Compound Interest Scheme


Government of India announced the waiver of compound interest on small loans under INR 2 crore that were taken before 29th February’20. This wavier will be applicable from 1st March’20 to 31st August’20. This entire scheme will cost Government of India ~INR 7,500 crore. Let us get to know the details about this scheme in this blog.

Stock O Meter
Stock O Meter – A Complete Equity Research Tool by Invest Yadnya

Compound Interest Waiver Scheme by Government

What is the scheme exactly?

Government of India has announced waiver scheme wherein loans taken before 29th February’20 will not have to bear the compound interest on their loans for moratorium period. People with such loans will have to pay simple interest on their loans from 1st March’20 to 31st August’20.

Also, this scheme is available only for loans that are below INR 2 crores.

What is the purpose of this scheme?

Since borrowers who have opted for loan moratorium , have to pay only the simple interest for moratorium period, while those who did not , paid compound interest. This scheme is mainly introduced to ensure equal treatment to both types of borrowers – those who have opted for moratorium and those who have not.

What type of loans are covered under this scheme?

  • Any type of loan (Auto, Education, Home Loan, Consumer/Durable loan, Personal, Credit Card, MSME loan, etc.) which is less than INR 2 crores is covered under this scheme.
  • It is important to note that the loans mentioned above should not be NPAs as on 29th Februaury’20.
  • Also, it is applicable only for the loans issued from recognized institutions like Banks, NBFCs, Housing Finance Companies, etc. It is not applicable for loans take from family, friends, etc.

What is the actual benefit that borrowers will receive?

Let us understand this with an example. For instance, if a person has taken a loan worth INR 1 lakh at the interest rate of 8%, his benefit would be ~INR 680. Similarly, IRN 25 lakh loan at 8% interest rate would result in savings of INR 1709, for INR 50 lakh loan, it would be INR 3419, and so on.

Thus, a borrower will receive the difference between the interest payments (based on simple interest and compound interest calculations).

It is mainly beneficial for those borrowers that have taken loans at higher interest rates.

What is this payment called and when can I receive this? Is it taxable?

It is called as ex-gratia payment and it will be credit in borrower’s account by 5th November’20. This payment is taxable under the regular income tax slabs of the borrower. Thus, the actual benefit is quite lower.

2 thoughts on “Govt of India’s Waiver of Compound Interest Scheme

  1. Hi sir..we took loan from pnb on jan 2018 and applied for transfer of loan from pnb to sbi on third week of march 2020.Whether we are covered under waiver of compound interest scheme?

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.