Are you planning to take loan against your Public provident fund account (PPF)? PPF are considered one of the safest and high return government investments schemes for investment and saving. You can open a PPF account with any designated banks wherein, you deposit periodically and get fix return on it, which is paid to you after a fix time.
If you want money before its maturity, you can avail a loan on PPF. In this article I have explained all concepts for loan from PPF. After reading this article, you will be able to decide whether you should go for loan from PPF or not? And you will be familiar with whole process of loan from PPF.
Rule 10 of public provident fund Scheme 1968 deals with Loan from PPF.
When can we take loan on PPF account ?
The first condition which is obvious that you should have a PPF account, against which you can can apply for loan.
If you don’t have, find here how to open a PPF account.
As per Rule 10 of Public provident fund scheme, 1968, you can apply for loan on PPF from third year.
As per the rule, year means a financial year. Means starting from 1st April and ends with 31st March.
Fist year is the year in which you made initial subscription.
For example, you started making investment in PPF in Dec 2019, then the first year would be 1st April 2019 to 31st March 2020. You can start availing from third year i.e from 1st April 2021.
You can apply for loan on PPF till the expiry of 6th years. So as per above example, the 6th year is 1st April 2025 to 31st March 2026
How to apply for PPF Loan
It can be applied though Form D in any designated bank or post office.
What is the limit of Loan from PPF?
You can apply PPF Loan maximum to the limit of 25% of the balance standing at your PPF account at the end of second year.
For example, suppose you started PPF investment from Dec 2019, and till 31st March 2021, i.e the end of second year, the amount invested with interest earned thereon on your PPF account is Rs. 3 Lac. Then you can apply for 25% of Rs. 3 Lac only.
Time Limit to Repay Loan against PPF
Rule 11 of Public provident fund Scheme, 1968 deals with repayment of Loan agaisnt PPF.
According to repayment rule, you have to return the loan within 36 months after availing it from the 1st day of following month in which loan was sanctioned to you.
For example, suppose loan is sanctioned to you on 1oth Jan 2020, the 36 months starts from 1st Feb 2020.
How to Repay the Loan from PPF?
There are two methods in which you can repay PPF Loan
- Repay in one lump sum. It means whole amount in one lot
- Repay in two or more monthly installments before the repayment time limit of 36 months
Repayment can be done as a lump sum amount or two months installments.
What is interest rate for PPF against loan?
Once the principal amount is fully paid, Interest@ 1% per annum is paid in not more than two monthly installments. Interest is paid from the 1st day of following month in which loan is taken to the last day of month in which loan is repaid.
Example: Suppose you take loan on 5th Jan 2019 and fully repay in 15th Oct 2023. Interest will be calculated from 1st Feb 2019 to 31st Oct 2023.
What is the penalty for late payment of Loan on PPF?
Where PPF Loan is not repaid within 36 months as mentioned above, interest @6% shall be charged instead of 1%.
Penal interest of 6% is paid for the period from 1st day of month following the month in which PPF loan was taken to the end month of month in which loan is repaid.
What are other options for Loan against PPF?
- Premature Closure of PPF account: Govement under specific circumstances allows premature clousure of PPF account. These circumstances are like treatment of life-threatening ailment, funds for higher education, change of residential status. Click here for Notification on Premature Closure of PPF.
- Withdrawal from PPF account: You can withdraw from PPF account from 7th year onwards. Withdrawal limit is 50% of your balance. From 16th Year you can withdraw entire balance.
Important Points for Loan against PPF
Before applying for loan against PPF account, you must be aware of the following points.
- No fresh loan is given until you pay the existing loan fully.
- PPF being long term investment should not be utilize for short term benefits. You must use it in case of emergency only.
Hope I have covered all important points for PPF Loan, plsease leave commnet for any query.