August 13, 2015

15 Rules of availing Loan against PPF (Public Provident Fund)

Earlier I had already written a post about PPF Loan and withdrawal. However, in this post I will explain you about the rules and eligibility of availing loan against PPF (Public Provident Fund).

Loan Against PPF

Before proceeding further, first understand from when you are eligible to withdraw the loan. Hence, request you refer my earlier post “PPF-Loan and Withdrawal“.

1) From when can you avail a loan?

From the third FY onward, you can avail the loan. For example, let us say you opened the account in November 2011. Then the FY for an account opened is 2011-12. You can avail the loan from FY 2014-15 i.e. from 1st April, 2014.

2) Which form you can use to avail a loan?

You have to use Form D to avail loan. Along with this, you also have to submit the passbook.

3) Up to what period you can avail a loan?

You can avail loan up to 6th FY of account opening. Let us say you opened the account in November 2011. Then you can avail loan from FY 2014-15 to FY 2016-17 i.e. up to 31st March, 2017. Because from FY 2017-18 onward, your account will be eligible for withdrawal ONLY.

4) How much can you avail?

You can avail up to 25% of the balance available in an immediate preceding year in which you are applying. For example, let us say you opened the account in November 2011.  You will be eligible to avail loan from 1st April, 2014. The amount eligible for a loan will be 25% balance available in your PPF account as of 31st March, 2014.

5) What will be loan tenure?

The loan repayment tenure will be maximum 36 months or 3 Yrs from the first day of the month following the month in which the loan is sanctioned.

6) Whether you can avail loan from the inactive PPF Account?

You are not allowed to avail loan from an inactive account. You have to activate it and then only based on the above conditions, the loan will be sanctioned.

7) How can you pay loan principal?

You can pay it either in a lump sum or in installments.

8) When can you pay the interest?

You have to repay the interest in two monthly installments after you fully paid the principal amount.

9) How much will the interest chargeable to PPF loan?

It is more than 2% of what you are getting from your PPF investment. Hence, the current rate of interest on PPF is 8.7%. Therefore, the interest rate for a loan on PPF will be 10.7%. PPF loan interest is linked to the interest rate of PPF. So you have to remember that interest on a loan will also change based on the yearly change in PPF. The interest will be chargeable from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last installment of the loan is repaid

10) What if you did not repay the principal with 36 months?

If you are unable to repay the loan within 36 months, then the interest rate will be hiked to 6% more than what you are getting from PPF on remaining principal balance. For example, the current rate of PPF is 8.7%. Therefore, if you are considered as defaulter for this FY, then the interest rate on remaining loan balance will be 14.7%. If you still don’t pay the dues then this outstanding principal and balance will be deducted from your PPF amount at the time of maturity. This additional interest will be chargeable from the first day of the month following the month in which the loan was obtained to the last day of the month in which the loan is finally repaid.

Therefore, keep in mind that if a loan is not repaid then the interest will be more than 6% but not 2% from the initial loan date to till last date. This I think is a hard part to someone who not pay.

11) What if you did not repay the interest?

As I said above, once you repay the principal amount then you have to pay the interest in two monthly installments. If you fail to do so, then the outstanding interest will be deducted from your PPF balance.

Also, do remember that if you apply for withdrawal from 7th year onward then they deduct any outstanding loan and interest amount before making your payment of withdrawal.

12) Who can avail loan for a minor’s PPF Account?

A guardian can apply for a minor’s PPF Account. However, while writing an application, you have to mention “Certified that the amount for which loan is applied for is required for the use of ……. Who is alive and is still a minor.”

13) How often or how many times you can avail a loan?

You are eligible to avail a loan only once in an FY. Even if you repaid the loan within a year, then you are not allowed to take the fresh loan within a same FY. Let us say you took the loan on 13th August, 2015 and repaid the loan on 25th January, 2016. Then you are not allowed to take the fresh loan up to 31st March, 2016. Because, as per rule, only once, you can take the loan in any FY.

14) Loan repayment available for Sec.80C benefit?

Your loan repayment (either principal or interest) will not be eligible for rebate under Sec.80C.

15) Who is liable for loan and interest repayment in case of a death of PPF Account holder?

It is the responsibility of nominee or legal heir to repay the all outstanding. All outstanding to the account will be deducted before the closure of PPF Account.

Our Earlier Posts related to PPF (Public Provident Fund)

26 Comments

  1. i have opened PPF account in SBI on 16/12/2009.
    i want some loan based on my PPF saving. currently i have around 8.5 lakhs in my PPF so how much i will get as a loan.

    Reply
  2. Sir,
    I have take home loan. I have PPF account from which I can withdraw 10 Lakhs. Moreover I am in 30 % tax bracket. Should I withdraw this 10 lakhs from PPF and put in home loan. Or let this 10 lakhs to continue in PPF. Which one is beneficial , please advise

    Reply
    • Dear Saket,
      It is hard for me to say YES or NO. Because I don’t know for what purpose you have invested in PPF and I am not sure about your financial goals.

      Reply
  3. Sir Is anyone can avail loan after completing 6th year if he or she doesn’t want to withdraw the fund. The ppf account has been transferred from Post office to Bank and wants to avail loan from the bank

    Reply
  4. Sir, I took loan from my PPF account in March 2018, Can I take loan again in May 2018 after I pay the Principal and Interest amount together in the month of May, 2018

    Reply
    • Dear Naidu,
      Yes, there is no restriction on number of times you can avail loan but restriction only on the loan amount based on the age of the PPF.

      Reply
      • Thank you so much sir

        Reply
  5. Superb Basavaraj

    Reply
  6. Very valuable for a lay man like me
    Thanks for concepts that too with eg.

    Reply
  7. Hi basu,

    Excellent article as usual! Kudos. My PPF account @ SBI Chennai matured in Feb this year and I forgot to withdraw it. Sounds strange, but true. Now I’m 1000 km away from there and the Branch here refused to transfer saying that it has matured. I’m worried, it has a decent amount in it and before i go in Jan there to Chennai, please advise, will the account accrue interest? If not it could be a huge loss for the amount it has in it 🙁

    Reply
    • Teja-Cool down…If you not withdraw the PPF post maturity, then the default option will be extension of for 5 more years without any fresh contributions. Hence, you can withdraw after another 5 years without any fresh contributions and the accumulated amount will earn the regular interest.

      Reply
      • Hi Basu, Thanks for taking off the burden of doubt on me with your nice reply.

        Reply
  8. Hi Basu,
    I am a regular reader of your blog which really helped me in understanding the basic of savings and investment.
    Would be thankful to get answer for following questions:-
    i) I have opened PPF account in July 2015, I read somewhere that my financial year will be 2016-17 as i have opened the account after the 5th of april 2015, and the locking period will be till 31st march 2032…. is it true??
    ii) till now I have invested total of rs 50k ( rs 10k monthly between 1 to 5th of starting of the month, knew this method after reading your blog) my question is whether I will get tax benefits for the financial year 2015-16 for this investment as ppf financial year will be 2016-17 for me.

    Reply
    • Pankaj-1) Your financial year of PPF account opening is 2015-16 but not 2016-17. It will mature on 1st Arpil, 2031. Because your PPF completes 15 years on July 2030.
      2) I already answered to this.

      Reply
      • Thanx for clarification…. 🙂

        Reply
  9. Hi,

    My self Rakesh Reddy

    I have worked for XYZ company from 2003 to 2008, from 2008 to 2014 YYY company and 2014 to as on date for ZZZ company.

    1.When i left from XYZ I have transferred the PF amount to YYY company PF account(But it was happened in 2012) in the statement the Employee contribution + Employer contribution (8.33%) is showing. What about the balance amount status how i can found the same?

    2. I have activated the UAN No. when i am working with YYY company, Now i have forgot the password and i am not using the mobile what i have registered, How i can get the password or can i change the register mobile no.

    Please help with the solution.

    Rakesh Reddy D

    Reply
    • Rakesh-1) Check with your EPFO, because EPS will follow EPF.
      2) Through your currrent employer, you can reset the password and also register the new mobile.

      Reply
  10. Sir I am a railway service holde,under NPS
    May I open APY (Atal Pension Yojna)
    Is it good?

    Reply
  11. Hi Basu sir,

    I am working and my wife is self employed and we are blessed with two kids. Can we have total 4 ppfs accounts (1 for me, 1 for spouse, 1 for 1st kid and another one for 2nd kid). we intended to deposit total of 3 lacs in all four accounts (Like 75K in each account).

    Deepak

    Reply
    • Deepak-You can have so. But you and your minor kid’s account combine investment must be up to Rs.1,50,000 only. The same applies to your wife’s and another minor kid’s account.

      Reply
  12. Dear Basu Sir,

    I use the Settlement Option tool in my business quite a lot as the Interest Rate on Settlement option is around 6 per cent. But I fail to calculate the whole stuff manually. How the amount payable per year from Maturity Claim is calculated if policy holder opts for the Settlement option when a policy matures? Please help me understand this. Thanking you Basu.

    Reply
    • Joydeep-It is not 6% alone but over and above the prevailing PPF interest rate. Suppose the current PPF interest is 8.7% then the interest on such amount which not settled within 36 months will be 14.7% (8.7%+6%).

      Reply

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