MoneyClarityTech · Business loans

Your PMEGP subsidy is real. It just isn't yours for three years.

PMEGP pays 15% to 35% of your project cost — but to the bank, into a deposit in your name, where it sits for three years before it is set off against your loan. Until then you borrow the full amount and repay from the business. Put in your project and see the subsidy, the loan, what the deposit saves you in interest, and what you actually repay.

Where the scheme standsApplications continue on the official PMEGP e-portal. The last published five-year approval ran from 2021-22 to 2025-26, and the rates here are the ones set under those guidelines. If revised guidelines are notified, the portal will show them first.

Project costMachinery, equipment, premises work and one cycle of working capital — never land

Activity

Unit located in

ApplicantSpecial: SC, ST, OBC, minority, women, ex-servicemen, transgender persons, persons with disability, and applicants in the North-East, aspirational districts, and hill and border areas

Interest rate% a year, as your bank quotes it

Repayment periodYears of principal repayment after the moratorium — PMEGP allows 3 to 7

MoratoriumMonths before principal starts; interest is still paid monthly

Instalment worked out onBranches differ. Ask at sanction

Your subsidy — margin money

—

Your own share—

Bank loan—

Loan you really repay—

What the deposit is worth

The subsidy earns you nothing in the deposit, and the matching part of your loan is charged nothing. That interest you never pay is the benefit you get before the subsidy is set off.

Held in your name, locked for three years—

Interest avoided each year on that part of the loan—

Over the three-year lock-in—

Set off against your loan in—

What leaves your account

—

Each moratorium month—

Heaviest month—

Total interest you pay—

Loan closes in—

Month	You pay	Principal	Interest	Owed after

What the counter does not explain

The subsidy sits beside the loan, not inside it

You borrow the whole project cost minus your own share. The subsidy does not reduce that on day one — it is released to the bank and parked in a deposit. A special-category applicant, with a smaller own share, actually borrows more.

Spend less than sanctioned and the extra subsidy goes back

At the end of the third year, if what you actually spent on the project is less than the cost sanctioned, the subsidy is cut to match. Padding the project report does not earn more subsidy; it only risks the refund.

The set-off depends on the unit still running

The deposit is adjusted against the loan after three years only if the unit is working and the implementing agency raises no objection. A unit that has closed, or a loan that has turned bad, can lose it.

Above the ceiling, the bank can still lend — without subsidy

The subsidy is worked out on project cost up to ₹50 lakh in manufacturing and ₹20 lakh in service or business. Anything beyond is an ordinary loan.

Bigger projects need Class VIII

Projects above ₹10 lakh in manufacturing or ₹5 lakh in service or business need at least a Class VIII pass. Below that, no education requirement applies.

How to read this. Subsidy rates: general category 15% urban and 25% rural, with a 10% own contribution; special category 25% urban and 35% rural, with a 5% own contribution; on project cost up to ₹50 lakh in manufacturing and ₹20 lakh in service or business. The bank loan is the project cost less your own contribution, disbursed at once for this illustration. Interest is charged monthly at one-twelfth of the annual rate on the outstanding loan less the subsidy held in deposit, and the deposit is set off against the loan at the end of month 36 from disbursement. Principal is repaid in equal monthly instalments after the moratorium; for an EMI comparison use the MSME Loan Calculator. Banks compute interest on daily balances and handle the instalment basis in their own way, so real figures will differ slightly. Your sanction letter is the final word. This tool is education, not advice. Nothing is uploaded, nothing is stored, and every figure is computed on your own phone.