Understanding Loans Against Public Provident Fund: Eligibility, Interest Rates, and Repayment

Original: Loan against PPF: What is it? Who can avail loan against Public Provident Fund? Interest rates and how to repay

Mint•Apr 5, 20263 min

In a Nutshell

A loan against a Public Provident Fund (PPF) account allows account holders in India to borrow funds at a low interest rate between the third and sixth year of their account. The maximum loan amount is 25% of the PPF balance at the end of the second year, and repayment must occur within 36 months.

Key Points

01Loan against PPF is available from the third to sixth financial year of the account.
02Maximum loan amount is 25% of the PPF balance at the end of the second year.
03Interest rates are 1% per annum if repaid within 36 months; otherwise, it rises to 6%.
04PPF savings do not earn interest during the loan repayment period.
05Repayment of the principal must occur within 36 months, with interest payable in two installments.

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Full Summary

The Public Provident Fund (PPF) is a tax-friendly savings instrument in India, allowing individuals to invest between ₹500 and ₹1.5 lakh annually. A loan against a PPF account can be availed by account holders from the third to the sixth year of account opening, allowing them to borrow up to 25% of the balance at the end of the second year. The interest rate on such loans is 1% per annum if repaid within 36 months, increasing to 6% thereafter. During the loan repayment period, the PPF account will not earn interest. To apply for the loan, account holders must fill out Form D and submit it to their bank or post office. Repayment of the principal is required within 36 months, while interest can be paid in two installments. Failure to repay interest may result in deductions from the PPF balance.

Key Figures

₹1.5 lakh

Maximum annual investment in PPF

25%

Maximum loan amount against PPF

1%

Interest rate if repaid within 36 months

6%

Interest rate if repaid after 36 months

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Why It Matters

This loan facility provides financial flexibility to PPF account holders, allowing them to meet urgent financial needs without liquidating their investments.

Who is affected

PPF account holders in India

What to know

Account holders considering a loan should assess their repayment capacity and understand the implications on their PPF savings.

FAQ

You can borrow up to 25% of the PPF balance at the end of the second year.

If you fail to repay the interest, the remaining amount will be deducted from your PPF account balance.

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