Loan Against PPF Account: What You Need to Know

Last Updated on October 27, 2023 by BFSLTeam BFSLTeam

Public Provident Fund (PPF) is a popular long-term savings scheme that offers attractive interest rates and tax benefits. Many people invest in PPF to save for their retirement or other financial goals. But did you know that you can also take a loan against your PPF account in case of an emergency?

Features of Loan Against PPF Account

• You can avail of loan against Public Provident Fund account from the third financial year till the end of the sixth financial year of opening the account. 
• You can borrow up to 25% of the balance in your PPF account at the end of the second financial year preceding the year in which you apply for the loan.
• The interest rate charged on the loan is 1% per annum, which is much lower than the interest rate offered by personal loans or credit cards. The interest rate is subject to change by the government from time to time.
• The loan has to be repaid within 36 months from the date of availing it. You can repay the loan in lump sum or in instalments. The repayment amount will be credited to your PPF account.
• If you do not repay the loan within the stipulated period, the interest rate will be increased to 6% per annum from the date of default till the date of full repayment.
• You can avail of a second loan only after repaying the first loan in full. However, you cannot take more than one loan in a financial year.
• You cannot avail of loan against PPF account after the end of the sixth financial year. However, you can make partial withdrawals from your account from the seventh financial year onwards, subject to certain conditions and limits.

Benefits of Loan Against PPF Account

• Taking a loan against Public Provident Fund account can help you meet your urgent financial needs without liquidating your long-term savings.
• The interest rate on loan against Public Provident Fund account is very low compared to other sources of borrowing. This can help you save on interest cost and repay the loan easily.
• The loan amount and interest are not taxable under income tax. This means that you do not have to pay any tax on the amount borrowed or the interest paid.
• The loan does not affect your PPF balance or interest accrual. Your PPF account will continue to earn interest at the prevailing rate on the entire balance, irrespective of the loan amount.
• The loan does not require any collateral or guarantor. You can avail of the loan by simply filling an application form and submitting it to your PPF account branch.

Also Read: EPF Form 10C

Drawbacks of Loan Against PPF Account

• The loan amount is limited to 25% of your PPF balance at the end of the second financial year preceding the year of application. This may not be sufficient to meet your financial requirement in some cases.
• The loan facility is available only for a limited period of four years, from the third to the sixth financial year of opening the account. After that, you cannot take any loan against your PPF account.
• The loan has to be repaid within 36 months from the date of availing it. If you fail to do so, the interest rate will be increased to 6% per annum from the date of default till the date of full repayment.
• Taking a loan against Public Provident Fund account may reduce your savings for your long-term goals. 

Also Read: Understanding PPF Withdrawal

Conclusion

Loan against PPF account is a convenient and cost-effective option for borrowing money in times of need. However, it should be used only as a last resort and only for genuine purposes. You should also ensure that you repay the loan on time and avoid defaulting on it.

Also Read: Withdraw PF Online