Loan Against PPF, Eligibility, Interest Rates & Documents

Sometimes we need urgent money and left with the only option of a Loan. But taking a loan can cost you a huge amount in terms of interest. Here is the lifesaver comes – Loan against PPF. The loan on PPF is a lifesaver because interest rates on PPF loans are low as 1% per annum.

Also, read how to take a Loan against LIC Policy.

PPF Loan Account

The PPF Account is extended for 5 years, for any number of times and the PPF account loan is for 15 years. The PPF account is allowed to be opened by an elderly person or a person who is below the legal age of responsibility but through the parent or the guardian. A joint account is not allowed. Also, NRIs are not eligible to open a PPF account or invest in a PPF account loan.

The minimum and maximum deposits in each financial year are 500/ and 1,500,000 respectively.  The deposit can be either in a single payment of money or a maximum of 12 installments in one year. The deposits shall be in multiples of Rs.100/ related to a minimum amount of Rs 500/.

The guardian helps the minor deposit account for the limit of Rs1,500,000 and the account is always joined together to help the minor. Available nomination facility. The money is locked for 15 years period then the money can be withdrawn as a whole when it gets mature.

However, withdrawals of premature accounts can be made from the end of the sixth financial year from when the commenced. 50% is the maximum amount that can be withdrawn prematurely and this is equal to the amount that stood in the account at the end of 4th year proceeding the year in which the amount is withdrawn or the end of the preceding year which is very lower. According to the PPF scheme 1968, the facility of loan against the PPF deposits is available from 3rd to 6th year of deposit to the range of 25% of the amount deposited as at the end of the last financial year. 36 months is the range of the repayable of the loan. Premature closure of a PPF account is not allowed except in case of demise of the nominee or legal inheritor of PPF Account holder on the demise of the account continues the account, but the account has to be an exit. The account holder can retain the account after maturity for any period without making any further deposits.

PPF Loan Interest Rate

The revised rules and them being the new rules, the interest rates on a PPF loan is charged at one percent per annum. December lately, the government made some adjustments to the public provident fund. The changes were in terms of the interest rate charged on loans take against PPF accounts. According to the changes made in the scheme, any loan is taken from or after December 12, 2019 will be charged at the rate of one percent per annum instead of two percent as it was earlier. The interest rate at one percent on such a loan is much cheaper compared to other types of loans. However, masters advise against taking a loan against one’s PPF account and this are the fact that you will lose out on the tax-exempt interest amount that you earn on your PPF. As per Alok Agrawal, partner, Deloitte India, the interest rate charged on the loan taken from the PPF account is charged at the rate of one percent per annum. However, while taking a loan against the PPF account, the individual also loses out on the tax exempted interest. Actually, no interest is paid on the PPF account (and this is considered to the extent of the amount of loan taken) till both the principal amount plus interest is repaid. The amount left in the PPF account will continue to earn interest. This makes the effective interest rate charged on loan from PPF account at the rate of the current PPF interest rate plus one percent. The PPF is preferred among savers due to its tax benefits. PPF enjoys an exempt-exempt-exempt (EEE)status i.e. The money is free from taxes at the time of investment, accumulation and withdrawals. Raj Khosla, founder and managing director, my money indicated that the PPF account is used for wealth creation in the long term and offers guaranteed tax-free returns. The lower interest rate on loan against PPF does look applicable. For instant, during the loan period, someone must know that the account does not earn any interest until the time loan is repaid, therefore impacting the tax-free returns of the account holder. Another reason to take a loan against PPF is that due to the amount that you can borrow and the way in which you can borrow. As per the scheme rules, an individual can take a loan after the expiry of one year from the end of the year in which the account was opened. In ordinary terms, this means that loan is available from the third year of opening of account till the sixth year of opening account. The amount of loan that a person can get can’t be more than 25% of the amount that was available in the bank.                          

PPF Loan eligibility

A person is eligible to take a loan from PPF from the third financial year but this action is available only till the 6th financial year. The public provident fund is EEE tax status i.e. at the time of investment, interest earned during the investment period, and the maturity proceeds are exempted from tax. However, in a period of 15 years, the scheme is always locked. The entire balance in the PPF cannot be used in the avail of the loan. The loan amount is ranked at a maximum of 25% of the balance available at the close of 2 years immediately preceding the year in which the loan is being applied for. Withdrawals can be done from your PPF starting from the 7th year. For the account that was opened in 2014-15, the withdrawal actions will start from April 2020. There are limits on the amount of money that you can withdraw from the account. As per the PPF scheme rules, a person can be eligible to withdraw lower of the following

50% of the balance available at the end of the fourth year immediately preceding the year of withdrawal or

50% of the balance stood at the end of the preceding year.

However, if your PPF account was opened during the financial year 2011-2012 and if you visit the branch any day during FY2017 -18 to apply for a loan, then the amount you are eligible for will be calculated. If there is any loan taken by the client earlier that remains unpaid at the time of withdrawal, then it will be subtracted from the withdrawal amount the client will be eligible for and this action is available only once a year.