According to government sources, about 30 % of home loans fall in this bracket.

The scheme had been announced in the budget as an incentive to poor and middle-class families to buy a house at a time interest rate ranges between 10 % and 15 %.

The interest subsidy scheme will work to ease financial pressure on middle-class home buyers, officials said. The government proposal, however, makes it clear that the interest subvention is not on existing home loans.

Under a scheme introduced in 2009, home loan borrowers were getting one per cent interest subsidy on bank loans of up to Rs 10 lakh, provided the cost of the house did not exceed Rs 20 lakh.

Finance minister Pranab Mukherjee in his budget this year had announced a liberalisation of the existing scheme of 1 % interest subvention on housing loans of up to Rs 15 lakh, where housing cost does not exceed Rs 25 lakh.

“A budgetary provision of Rs 500 crore has been made for the financial year 2011-12 for implementing the scheme,” minister of state for information and broadcasting Ambika Soni told reporters after the cabinet meeting.

With the increase in the housing loan ceiling, the limit of subsidy for an individual borrower would go up to Rs 14,865 per year for a loan of Rs 15 lakh on reducing balance basis from the present limit of Rs 9,910 for a loan of Rs 10 lakh, Soni said.

The government has designated the National Housing Bank as the nodal agency for implementing the scheme, both for scheduled commercial banks and housing finance companies, the minister said.