Loan against PPF: What is it? Who can avail loan against Public Provident Fund? Interest rates and how to repay

A Public Provident Fund (PPF) account is one of the most tax-friendly savings instruments for long term savings as you do not have to pay any taxes on interest and proceeds from this tool. PPF is a fixed-term investment scheme that allows you to save money and earn a guaranteed corpus after a certain period of time. PPF also enjoys tax deduction under Section 80C, and individuals can invest as low as ₹500 or as high as ₹1.5 lakh in a year. All these benefits makes PPF a popular form of investment across India, especially for those who want risk-free investments.

While PPF is traditionally used as an investment tool, you can fall back on it if you are ever in needs of fund even before maturity. Apart from providing tax benefits, PPF account holders can take a loan against their account on basis of the PPF balance standing to their credits.

What is loan against PPF and how to get it?

A loan against PPF is a facility available to all account holders who are not yet eligible for premature withdrawals. It allows you to borrow money against your PPF balance at a nominal interest rate between the third and sixth year of opening your account.

To get a PPF loan, account holders are required to collect Form D from their nearest post office or home branch, fill it, and then submit it to the bank or post office where the PPF account is held.

Account holders are required to provide necessary information in the form while filling out the form including PPF account number, the loan amount applied for, copy of the passbook and a declaration.

Who can take loan against PPF?

PPF account holders who are not eligible for withdrawals can avail loan against PPF. A loan against PPF can be availed from the third to sixth financial year since the account was opened. It is a short-term loan that needs to be paid within a period of 36 months.

Loan against PPF: What is the limit?

The maximum amount of loan that can be availed against your PPF account is 25% of the balance in the PPF account at the end of the second year, immediately preceding the year in which the loan is being applied for.

It must also be noted that investors who pay off a loan before 36 months can avail a second loan before the sixth year of PPF account opening.

Interest rates

The rate of interest applicable on a loan against PPF is as low as 1% per annum if the loan is paid within 36 months. However, if the amount is repaid after 36 months, the interest rate become 6% per annum from the date of disbursement. It must also be noted that your PPF savings will earn no interest during the repayment period.

How to repay your PPF loan?

You will have to repay the principal amount of the loan against PPF within 36 months. You can pay the interest in two or fewer monthly instalments after that. If you fail to repay a portion of the interest amount, the remaining amount will be deducted from your PPF account balance.