It is possible to take loan against the PPF account subject to certain rules and certain limitation on the amount of loan.
Rules for taking loan against PPF accountA subscriber can avail a loan on his / her PPF deposit any time after the completion of one year from the end of the financial year in which initial subscription was made but before the expiry of five years from the end of the financial year in which the initial subscription was made.
For example -A subscriber has opened an account in January 2010 that means PPF account is opened in the financial year 2009-10.
End of the financial year would be 31st March, 2010. Completion of one year from the end of the financial year
means 31st March, 2011. So subscriber will be eligible to take loan from April 1, 2011.
Expiry of five years from the end of the financial year in which the initial subscription was made means five years
from 31st March, 2010. That will come to 31st March, 2015. Which means subscriber will be eligible for a loan from
April 1st, 2011 to 31st March, 2015.
If some readers are wondering why till 5 years why not beyond that? Answer is, after five years subscriber is eligible for partial withdrawal so no need to take loan.
Read: What are the PPF partial withdrawal rules?Limit on Loan Amount
There is a limit on the amount that can be taken as loan from the PPF account which is as follows -
The loan amount will be limited to 25% of the balance outstanding to the subscriber's credit at the end of the second
year immediately preceding the financial year in which the loan is requested.
As Example-
A subscriber requesting a loan anytime in FY 2011 - 2012 will be eligible for 25% of the amount that stood to his credit (Principal + Interest) as on March 31, 2010.
Interest rate charged on the loan
Rate charged on loan is 2% above the rate of return on PPF. Since the current rate of interest on PPF is 8.7% (Please check the current rate of interest as it is announced every quarter) so the rate of interest charged on loan would be 10.7%.
Required document for loan
- Form D.
- Pass Book.
Condition for second loan
You can apply for a second loan from PPF too subject to certain rules, which are as follows -
A subscriber shall not be entitled to get a fresh loan so long as earlier loan has not been repaid in full
together with interest thereon.
Duration for the second loan should also fall in the same period -
After the completion of one financial year and before the expiry of five financial years.
Loan against Minor's PPF account
Loan can be taken from the Minor's account. In that case the following section in the loan form (Form D) has to be filled. "Certified that the amount sought to be withdrawn is required for the use of _____________________________________________ who is alive and is still a Minor"
Repayment of loan
The loan is repayable in 36 months. First the principal amount and then the interest amount as per the following rules -
Rules for repayment of principal
- The principal amount of the loan shall be repaid by the subscriber before the expiry of thirty six months
from the first day of the month following the month in which the loan is sanctioned.
As example - If loan was taken on any day in May then the period of 36 months will be calculated from the month of June.
- The repayment may be made either in one lump sum or in two or more monthly installments within the prescribed period of thirty six months.
- The repayment of principal will be credited to the subscriber’s account.
Rules for repayment of interest
- Once the principal of the loan is fully repaid then only you can pay the interest.
- The interest will be charged for the period commencing 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.
- Interest amount should be repaid in not more than two monthly installments.
- Unlike the principal amount that will be credited to subscriber's account interest paid on the loan is accrued to the government.
If the loan is not paid at all or is repaid only in part within the prescribed period of thirty six months, interest on the amount of loan outstanding shall be charged at six percent per annum 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. Total duration given for paying both principal and interest is thirty-six months.
Reference Download
SBI form DPoints to note -
- Loan from PPF account is allowed after the completion of one financial year and before the expiry of five financial years.
- Loan facility ceases to exist as soon as the PPF account is eligible for partial withdrawals.
- Loan can be taken from minor's PPF account too.
- Loan (principal + interest) has to be repaid with in 36 months.
- Interest rate charged is 2% above the rate of return on PPF.
That's all for this topic Procedure to Take Loan Against Public Provident Fund (PPF) Account. If you have any doubt or any suggestions to make please drop a comment. Thanks!
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