Public Provident Fund (PPF) account is one of the most tax-friendly saving instruments for long-term savings, because you do not have to pay any tax on the interest and amount received from this instrument. PPF is a fixed-term investment plan, through which you can save money and get a guaranteed amount after a fixed period of time. PPF also gets tax exemption under Section 80C, and people can invest a minimum of ₹ 500 or a maximum of ₹ 1.5 lakh in a year. Due to all these benefits, PPF has become a popular method of investment across India, especially for those who want to invest without any risk.
Although PPF is generally used as an investment vehicle, you can depend on it if you need money before maturity. Apart from tax benefits, PPF account holders can also avail loan against their account based on the PPF balance in their account.
What is loan against PPF and how to get it?
Loan against PPF is a facility available to all account holders who are not yet eligible for premature withdrawal. It lets you borrow money against your PPF balance at very low interest rates between the third and sixth years of opening your account.
To avail PPF loan, account holders need to collect ‘Form D’ from their nearest post office or home branch, fill it, and then submit it to the bank or post office where they have their PPF account. While filling the form, account holders are required to provide required information in the form, which includes PPF account number, loan amount sought, copy of passbook and a declaration.
Who can take loan against PPF?
PPF account holders who are not allowed to withdraw money can take a loan against PPF. Loan against PPF can be taken between the third to sixth financial year of account opening. This is a short term loan which has to be repaid within 36 months.
Loan against PPF: What is its limit?
The maximum loan that can be taken against your PPF account is 25% of the total balance in your PPF account at the end of the second year immediately preceding the year in which you are applying for the loan. It is also important to note that investors who repay the loan before 36 months can take another loan before the sixth year of opening the PPF account.
interest rates
The interest rate applicable on loans taken against PPF is as low as 1 per cent per annum, provided the loan is repaid within 36 months. However, if the amount is repaid after 36 months, the interest rate becomes 6 percent per annum from the date of loan. It is also important to note that there will be no interest on your PPF savings during the loan repayment period.
How to repay your PPF loan?
You will have to repay the principal amount of the loan taken against PPF within 36 months. After that you can pay the interest amount in two or less monthly installments. If you fail to repay any part of the interest amount, the remaining amount will be deducted from your PPF account balance.