How to take a loan against PPF

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A PPF account is one of the most tax-efficient instruments for long-term savings, as both interest and maturity products are tax exempt. It also benefits from a tax deduction under article 80C. Apart from these advantages, a PPF account holder can also avail a loan based on the PPF balance to his credit.

Eligibility

Loan usable from the 3rd to the 6th financial year of the account. If the account was opened in 2020-2021, the loan can be used from 2022-23. This will be a 36 month short term loan and will need to be paid back by then.

Interest

The interest rate applicable on the loan is as low as 1% per annum if the amount is repaid before the end of 36 months. However, if the amount is repaid after 36 months, interest is charged at the rate of 6% per annum from the date of disbursement.

Amount of the loan
The maximum loan amount that can be used is up to 25% of the PPF account balance at the end of the second year, immediately preceding the year in which the loan is requested. For example, if the account holder requests a loan in 2022-2023, then 25% of the credit of the PPF account balance as of March 31, 2021 will be applicable as the maximum loan amount.

Form

Form D must be completed by the account holder to request a loan from the PPF account indicating the account number and the loan amount requested and must be signed by the account holder. The PPF account passbook must be attached to the form and submitted to the banking / postal authorities where the PPF account is held.

Points to note

  • Only one loan can be taken out in a given fiscal year.
  • The second loan cannot be granted if the first loan has not been repaid.

(The content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava, and Labdhi Mehta.)


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