PMEGP Loan Subsidy 2026: 15-35% Subsidy, Limits & Apply

The PMEGP loan subsidy is a one-time grant of 15% to 35% of the project cost that the government pays towards a new micro enterprise, on top of a regular bank loan. It is run by the Ministry of MSME through KVIC, and covers projects up to ₹50 lakh in manufacturing and ₹20 lakh in services. If you are starting a unit and can prepare a project report, PMEGP is the single largest subsidy among the Pradhan Mantri small business loan schemes.

All terms below are as of October 2026. One important caveat: the approval for PMEGP's 2021-22 to 2025-26 cycle ran until 31 March 2026, and the government told Parliament that continuation for the next five years had been appraised by the Expenditure Finance Committee, with further subsidy releases depending on that approval. Before you invest time in an application, check the KVIC PMEGP portal or your District Industries Centre (DIC) for whether new applications and subsidy releases are active, and whether any terms have changed.

What PMEGP is (and what it is not)

PMEGP (Prime Minister's Employment Generation Programme) is a credit-linked subsidy scheme. That means:

• You still take a bank loan at the bank's normal interest rate.
• The government pays a margin money subsidy to the bank on your behalf.
• The subsidy is not cash in hand. It sits in a Term Deposit Receipt (TDR) in your name for three years. No interest is charged on the part of the loan equal to the TDR, and after three years, if the unit is running, the subsidy is adjusted against your loan.

So PMEGP is not a business loan without interest, but it does reduce the debt you actually service. For other schemes, see our comparison of government business loan schemes.

PMEGP subsidy rates and own contribution

The bank loan covers the balance: 90% of the project cost for general category and 95% for special category. The subsidy is calculated on the project cost, not the loan.

Eligibility

• Age: 18 years or above. No income ceiling.
• Education: Class VIII pass for projects above ₹10 lakh (manufacturing) or ₹5 lakh (service/business).
• New units only. Existing units and units that have already availed a central or state government capital subsidy are not eligible.
• One person per family can benefit (family meaning self and spouse).
• Eligible applicants also include self-help groups, registered societies, production co-operative societies and charitable trusts.
• Project limits: up to ₹50 lakh for manufacturing and ₹20 lakh for service units. Working capital is usually capped as a share of the project cost, so most of the money must go into capital assets.
• Excluded activities: a negative list rules out activities such as meat processing and sale, intoxicants like liquor and tobacco products, and certain plantation and crop activities. Check the current negative list on the portal before you design the project.

Worked example: PMEGP subsidy on a ₹10 lakh project

Suppose a woman entrepreneur sets up a small food-processing unit in a village with a total project cost of ₹10 lakh. She falls in the special category, rural area.

Now compare a general-category applicant in a city with the same project:

• Own contribution 10% = ₹1,00,000; bank loan = ₹9,00,000
• Subsidy 15% = ₹1,50,000
• Debt that bears interest = ₹9,00,000 − ₹1,50,000 = ₹7,50,000

To see what this means for repayment, assume an illustrative 10% interest rate and a 5-year (60-month) repayment of the interest-bearing debt:

• EMI = P × r × (1 + r)^n / [(1 + r)^n − 1], with r = 10 / 12 / 100
• ₹6,00,000 → EMI ₹12,748, total interest about ₹1,64,894
• ₹7,50,000 → EMI ₹15,935, total interest about ₹2,06,117
• Without any subsidy, a ₹9,50,000 loan → EMI ₹20,185, total interest about ₹2,61,082

This is a simplification. In practice the bank sets the repayment schedule (commonly 3 to 7 years after a moratorium) and the subsidy is adjusted only after three years, so your early EMIs may be worked out on the full loan with interest waived on the TDR portion. The direction is the same: the subsidy cuts both the debt and the interest. Plug in your bank's actual rate and tenure in the EMI calculator.

How to apply for a PMEGP loan

1. Prepare a project report. It should cover the product or service, machinery quotations, working capital, expected sales and cash flow. The portal has model project profiles you can adapt.
2. Register on the KVIC PMEGP e-portal with Aadhaar and fill the online application. Choose the implementing agency (KVIC, state KVIB or DIC) and your preferred bank branch.
3. Upload documents: Aadhaar, PAN, photograph, caste or special-category certificate if applicable, education certificate where required, rural area certificate for rural projects, project report and quotations.
4. Screening by the district-level task force. The agency checks eligibility and may interview you, then forwards the file to the bank.
5. Bank appraisal and sanction. The bank checks your CIBIL record and the viability of the project, then sanctions the loan.
6. Complete Entrepreneurship Development Programme (EDP) training. Short EDP training is mandatory before the subsidy is released.
7. Bring your own contribution and receive disbursement. The bank claims the margin money from the nodal agency, and it is kept as a TDR in your name for three years.
8. Physical verification. The unit is geo-tagged and verified. The subsidy is adjusted against the loan only if the unit is running after the lock-in period.

Applications on the portal are free. Anyone asking for a fee to "get PMEGP subsidy sanctioned" is not part of the scheme.

Second loan for upgrading a PMEGP unit

Units that were set up under PMEGP, used the earlier loan properly and repaid it on time can apply for a second loan to expand or upgrade. Under the 2021-26 guidelines, the project cost limit was ₹1 crore for manufacturing and ₹25 lakh for services, with a subsidy of 15% (20% in NER and hill states). Confirm the current terms on the portal.

Why PMEGP applications fail and how to avoid it

• Weak project report. Unrealistic sales or missing quotations is the most common reason banks decline. Keep numbers conservative and show the EMI is covered with a margin.
• Poor credit history. A default or settlement shows up on CIBIL. See how to improve your CIBIL score.
• Existing business or prior subsidy. PMEGP only funds new units by people who have not taken another government capital subsidy.
• Unit not running at verification. If the unit closes or the assets are missing, the subsidy can be withdrawn and recovered.

If PMEGP is not open or you are not eligible, a collateral-free Mudra loan is the usual alternative; see our guide to business loans and Mudra loans and the Mudra Tarun loan scheme. If a Mudra application is declined, read Mudra loan rejected: reasons and fixes.

Key takeaways

• PMEGP pays a one-time margin money subsidy of 15% to 35% of the project cost on new units up to ₹50 lakh (manufacturing) or ₹20 lakh (service).
• Your own contribution is 10% (general) or 5% (special category); the bank lends the rest at its normal rate.
• The subsidy is held as a three-year TDR with no interest on that part of the loan, then adjusted against the loan if the unit is running.
• On a ₹10 lakh rural project, a special-category applicant gets ₹3.5 lakh subsidy and services about ₹6 lakh of debt.
• PMEGP's 2021-26 approval ended on 31 March 2026; confirm on the KVIC portal or at your DIC that applications are open and terms are unchanged.