How to take loan against PPF

A Public Provident Fund (PPF) account is one of the most tax friendly instruments for long term savings as interest and maturity proceeds are exempt from tax. It also enjoys tax deduction under Section 80C. Apart from these benefits, a PPF account holder can also avail a loan on the basis of the PPF balance standing to his credit.

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


Interest
The rate of interest 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 loan
The maximum amount of loan that can be availed is up to 25% of the balance in the PPF account at the end of the second year, immediately preceding the year in which the loan is being applied for. For example, if the account holder is applying for loan in 2022-23, then 25% of the PPF account balance credit as on 31 March 2021 shall be applicable as maximum loan amount.

Form
Form D needs to be filled by the account holder to apply for loan against PPF account by stating the account number and amount of loan applied for and should be signed by the account holder. The PPF account passbook must be enclosed with the form and submitted to the bank/post authorities where the PPF account is held.

Points to note

• Only one loan can be taken in a particular financial year.
• Second loan cannot be provided if the first loan has not been repaid.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)