A Public Provident Fund (PPF) account is a popular long-term savings option in India. It offers tax benefits, as interest and maturity amounts are tax-free upon maturity. Though mainly a savings tool, PPF can also help in emergencies. Account holders can take a loan against their balance before maturity.
Understanding PPF
In a PPF account, investors can deposit between Rs 500 and Rs 1.5 lakh annually. It also qualifies for deduction under Section 80C within the old tax regime, allowing investors to reduce their taxable income. A government backed scheme, PPF comes with guaranteed returns, currently at 7.1% per annum.
It has a 15-year lock in period and allows for partial withdrawal facility from the 7th financial year of the account opening. To apply for a loan against your PPF account, you need to fill Form D. It is available at your bank or post office branch. Investors need to submit this form where their account is held and provide details such as account number, loan amount and passbook copy.
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Rules On Loan Against PPF
A loan against a PPF account can be taken between the third and sixth financial year after opening the account. It is a short-term loan that must be repaid within 36 months.
According to the rules, the loan amount is capped at 25% of the balance at the end of the second year before the application year. Repayment of this loan can be made either in one lump sum or through installments.
After repaying the principal, the account holder needs to pay interest in up to two monthly installments at 1% per annum for the loan period. If the loan is not fully repaid within 36 months, a higher interest rate of 6% per annum will apply on the outstanding amount until it is fully cleared, according to the rules.
If interest or dues are not paid on time, they can be debited from the account holder's PPF balance, the rules state.
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