Loan Against PPF Account
The Public Provident Fund (PPF), which also provides a loan against the amount invested, is one of the best and safest ways to invest.
Account holders have the option of taking out a personal loan at a lower rate of interest against the investment made in their account.
It is also one of the most tax-friendly long-term savings products, as the interest and maturity amounts are also tax-free. It is also eligible for a tax deduction under Section 80C.
A PPF account holder’s eligibility for a loan is based on the PPF balance that is credited to his account.
Loan Eligibility
The loan is available from the third to the sixth fiscal year of the account.If the account was opened in 2020 or 2021, then the loan can be obtained in 2022 or 2023.
Thereafter, individuals can withdraw small amounts as per their requirements from their PPF account without taking a loan. This will be a short-term loan, to be repaid within 36 months.
Loan Amount
The maximum loan amount that can be obtained is up to 25% of the account balance prior to one year of applying for the loan.
A second loan on the PPP account cannot be obtained until the first loan is fully repaid.
As per the PPF partial withdrawal rules, according to the HDFC Bank website, you can withdraw up to 50 percent of the amount in your PPF account after seven years. You can make only one partial withdrawal each year.
How to Make a Partial Withdrawal (Withdrawal of a Small Amount)
To make a withdrawal, you need to submit the PPF passbook and an application to the bank or post office.
The amount withdrawn will also be tax-free. This also remains unchanged in the PPF Withdrawal Rules 2021.
What Will the Interest Rate Be?
The interest rate on the loan is fixed at 1 percent higher than the interest earned on the account balance.
This means that the change in the interest rate on PPF accounts will also affect the interest rate on loans taken against PPF accounts.
It is to be noted that once the interest rate is decided for the loan, it will not change till the loan tenure is over.
To Be Returned Within
No collateral is required for the loan taken against PPF accounts. The loan can be repaid within 36 months, starting from the first month following the month in which it was disbursed.
The borrower may pay the principal in one lump sum or in two or more installments.
Tax Benefit
Under Section 80C of the Income Tax Act of 1961, contributions to the PPF are eligible for tax exemption.
PPF is one of the few financial products that generally feature an EEE tax classification. Experts say that you should consider other options for loans, as PPF offers risk-free, tax-free, and better-performing returns.
