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PPF Account

How to take a Loan against PPF Account?

Public Provident Fund schemes (PPF) remain one of the most sought-after investment options for wealth accumulation and tax-saving purpose. They are increasingly preferred by risk-averse investors who want long-term capital appreciation and tax benefits on investment and returns. Now, another factor behind the popularity of PPF is its loan facility – account-holders can take a loan against the balance in their PPF accounts. This is particularly useful for individuals who want to borrow for the short term, without pledging an asset, at low interest rates. In this article, we will look at the terms and conditions surrounding the PPF loan facility and how subscribers can take a loan.

PPF Loan Rules

The conditions pertaining to the PPF loan facility are as follows:

  • PPF subscribers can take a loan against their account from the third financial year till the end of sixth financial year.
  • The interest rate charged on the loan taken against the PPF account has recently been revised to 1%. Previously, the interest was fixed at 2%. The new rate is applicable for loans taken after December 12, 2019. (Note - The interest is charged at 1% over the applicable PPF interest rate.)
  • The withdrawal amount is capped to 25% of the balance available at the end of two years immediately preceding the year when the loan is being availed.
  • The loan taken needs to be repaid within a period of 36 months. In case the loan is not repaid within this time frame, the interest charged on the outstanding loan will be 6%.
  • The interest amount has to be repaid in two monthly instalments or lesser after the principal repayment.
  • A second loan cannot be availed against the PPF account until the first one has been entirely repaid.

Procedure to Take a Loan

PPF subscribers seeking to avail a loan have to submit Form D. The form reads “Application form for a loan under the Public Provident Fund Scheme, 1968”. The individual would need to mention his or her Public Provident Fund account number and the amount to be borrowed. In case the PPF subscriber has previously taken a loan, the same needs to be stated in the application, with the dates on when it was availed and repaid (in full). The individual's PPF Passbook must also be enclosed with the application.

Loan Repayment

The principal amount can be repaid in a lump sum or two (or more than two) monthly instalments. After the individual has repaid the principal amount, he or she would have to pay off the interest in not more than two monthly instalments. The principal amount will get credited to the individual’s PPF account, while the interest will be reverted to the Indian government.

The PPF account-holder must ensure that he or she pays back the entire debt on time. In case the individual fails to repay the due amount within the 36-month tenure, the interest rate on the loan shall be 6%. This rate becomes applicable from the date when the loan was sanctioned till the date of its repayment. If the individual has paid off the principal, but the interest is still due, then the amount would get deducted from the PPF account.