How to take loan against PPF

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A Public Provident Fund (PPF) account is one of the most effective and useful for long-term savings as their interest and the maturity amount both are exempt from tax. It also enjoys tax deduction to invest up to Rs 1.5 lakh each year under Section 80C.

The account is valid for 15 years and the account holder is required to deposit at least Rs 500 every financial year. Did you know? a PPF account holder can take a loan based on the PPF balance standing in his account 

Eligibility

The loan can be taken from the 3rd to the 6th financial year of the account. If the account is opened in 2020-21, the loan could be taken from 2022-23. It is a short-term loan for 36 months and must be repaid by then.

Interest

The interest rate is applicable at 1% per annum if the amount is paid before the end of 36 months. and if the amount is paid after 36 months, the interest rate is charged at 6% per annum from the date of loan disbursement.

Amount of loan

The maximum amount of loan that could be applied for is up to 25% of the balance in the PPF account at the end of the year, immediately before the year in which he is applying for the loan. For example, if the account holder is applying for a loan in 2022-23, then 25% of the PPF account balance should be there as 31 March 2021 will be approved as the maximum loan amount that could be taken in the year.

Form D

Form D has to be filled by the account holder before applying for a loan against the PPF account balance by mentioning the account number and amount of loan applying for in the form and it has to be signed by the account holder. The PPF account passbook is attached with the form and is submitted to the bank/higher authorities where the PPF account is held before applying.

Points to remember 

· Only one loan is approved in a particular financial year.

· Second loan cannot be approved if the first loan has not been repaid.

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