Loan against PPF account – Features, Benefits, Application Process – Public Provident Fund (PPF) is considered the most suitable tax saving investment option, which gives financial strength to your retirement plan. You can withdraw money even before the maturity period of PPF account. Apart from this, there is also a facility to take a loan after one year of opening the PPF Account.
Features of Loan against PPF Account
The important features of taking loan against PPF account are as follows :
Loan facility is available to all PPF subscribers.
When to avail the Loan
PPF account holder can avail the loan between 3rd and 6th financial year from the year of subscription. For example, if you have opened the account between April 1, 2016 to March 31, 2017, then the loan application can be made any time after April 1, 2018. It must be noted that after opening a PPF account, the loan can be applied for up to five financial years. If you have opened an account in FY 2016-17 and you start getting loan facility from 2018-19, then application can be made by 2022-23.
The amount can be partially withdrawn from the account from 7th financial year.
Quantum of Loan
A loan can be taken by the account holder up to 25 per cent of the total money deposited by the beginning of the second financial year.
Low Interest Rates
Interest rate charged on loan on PPF account is 2 percent more than interest rate offered on PPF account.
Loan amount along with interest will have to be repaid within 36 months of the month in which you have taken interest on PPF account.
If you fail to pay within this period, a penalty of 6 per cent per annum will be charged in addition to 2 percent interest rate charged.
First you have to repay the principle amount within the loan tenure followed by the interest. If there is interest amount left to paid, it will be deducted from PPF account.
PPF Partial Withdrawal
Under PPF scheme, you can withdraw partial amount from PPF account. However, facility to withdraw partial amount is available only after 5 years.
- After five years of opening a PPF account, you will not get the facility to take a loan on it.
- After this period, the account holder can withdraw 50% of the total deposit.
- Only one partial withdrawal is permitted in a financial year.
- If there is any outstanding loan amount for this period, the amount withdrawn by the account holder is deducted and the balance is paid off.
- To withdraw funds from the account, it is necessary that the amount is deposited regularly.
PPF Complete Amount Withdrawal
Once the lock in period of 15 year gets over, you can withdraw the complete PPF amount.
- Its maturity period is completed in 15 years after opening the PPF account and the account holder can withdraw his entire amount if he wishes.
- If you want to proceed (extension) with the account, you can apply through Form H.
- In order to extend the period of the account, you can withdraw up to 60 per cent of the total amount.
- After 15 years till you withdraw the entire money, you will continue to get interest on the remaining amount.
- For Premature closure of PPF account, a penalty of 1% will be levied from the actual interest rate that was given on account.
PPF Loan Schedule
Understand PPF Loan schedule with this example, suppose PPF account opening date is December 12, 2017. Then schedule of loan on PPF account will be as follow :
|PPF Account Opening Date||12 December 2017|
|Start Date of Loan Facility||April 1, 2019|
|End of Loan Facility||April 1, 2023|
|Max Loan Amount in FY 2019-20||25 % of the balance as on March 31st,2018|
|Max Loan Amount in FY 2020-21||25 % of the balance as on March 31st,2019|
|Max Loan Amount in FY 2021-22||25 % of the balance as on March 31st,2020|
|Max Loan Amount in FY 2022-23||25 % of the balance as on March 31st,2021|
|Max Loan Amount in FY 2023-24||25 % of the balance as on March 31st,2022|
Apply for Loan against PPF Account – Process
Here is the process to apply for loan against public provident fund (PPF) account.
- You have to apply to the bank on the application in the prescribed format for the loan. The application will be written by addressing to bank manager.
- In the application, you need to fill the loan amount and the period for repaying it. If you have ever taken a loan before, you will also have to give information about it.
- You must also present the PPF Passbook along with the application. Usually your loan is passed within a week.
Here is sample application format of post office. Loan against PPF account must be applied in Form D which you can download or take from respective bank branch or post office.
Benefits of Loan against PPF account
- No Collateral – To avail the loan, you are not required to offer any security or collateral.
- Low Interest rate – Interest rate charged on loan against PPF account is comparatively lower than those on other loan from banks.
- Flexibility in repayment – Loan against PPF offer you flexibility in repayment either in installments or lumpsum.
The biggest advantage of taking a loan against PPF is that it is cheaper than a personal loan. Actually the interest rate of this loan is just 2% higher than the interest rate of PPF account. That is, if you are getting 8% interest on PPF account, then you will have to pay 10 percent interest on PPF loan. It is much cheaper than the banks’ personal loan. The rate of interest on a bank personal loan is higher than this. So if you are facing cash crunch, you may opt for loan on PPF account.