Introduction
The Public Provident Fund (PPF), is one of the most favored investment choices for tax savings and accumulating long-term prosperity.
PPF, a 15-year investment plan, can be extended in blocks of 5 years.
It offers the “Partial Withdrawal” and “Loan Against Public Provident Fund” options to investors.
In terms of tax implications, this scheme offers the EEE (exempt, exempt, and exempt) advantage: money invested up to Rs 1.5 lakh in an FY, interest earned and the maturity proceeds are not taxable.
If an account holder fails to deposit the minimum amount of Rs 500/- in a calendar year,
the PPF account is treated as suspended. The holder cannot obtain loan facilitate or make partial withdrawals unless the a/c is revived.
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Loan Against Public Provident Fund
Kindly look at the following points while applying for a loan against a PPF account:
- All PPF holders are eligible for “Loan Against Public Provident Fund”.
- Loan against a PPF a/c can be availed between the 3 and 6 financial year of opening the a/c,
post this the individuals can partially withdraw the funds from their account. - In this case, if an account was opened in FY 2020-21, the first loan can be taken only from FY 2022-23. A subscriber can’t take a new loan until the previous loan has been paid off.
- The PPF loan funds can’t exceed 25% of the balance available in the a/c at the close of 2 years instantly preceding the year in which the loan is being applied for.
- A PPF loan can be taken only once in a financial year even though the loan taken in the FY is repaid in the same year.
- If you took this loan, the PPF scheme 1968 laid down an interest rate of 2% p.a. That means, if the PPF interest was 8 percent, you would have to pay an interest of 10 percent.
- PPF Scheme has reduced this rate to 1% from 2019 onwards.
Therefore if the PPF interest rate is 8%, you would have to pay a rate of 9% only if you take a loan against PPF. - If the subscriber fails to re-pay the PPF loan within 36 months, the applicable interest will increase to 6% more than the interest earned.
Also Read What is PF Advance Form 31 Rules, Eligibility, Online Filing Procedure and Claim Status
Loan Against Public Provident Fund from SBI
You should visit the website of SBI. It will showcase your PPF loan eligibility. If you have to apply for a loan, you need to submit an SBI Form D to the nearby SBI branch.
Most banks will offer you online to raise the Loan request against PPF. Though, in some conditions, you may have to visit the bank’s branch.
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Loan Against Public Provident Fund from Post office
You can apply for the loan by filling in the form and submitting it to the post office where you have opened your PPF account.
Loan against PPF vs Personal Loan
- Personal Loan Interest Rates are higher at 10.50 to 20% p.a., as compared to Loan Against PPF interest rates, which are clearly 1 percentage (from 2019 onwards) higher than the interest earned on the PPF account balance.
- You can take more than one Personal Loan in a FY, as long as you are orderly with your EMI (Equated Monthly Instalment) payments, and your bank is comfortable lending you extra funds.
This is, though, impossible with a Loan Against Public Provident Fund, wherein you are only allowed to take 1 loan in any given calendar year. - In a condition of a Personal Loan(PL), the tenure can vary from 1 to 5 years, depending on the PL agreement failing which you can suffer a severe blow to your CIBIL score, whereas a PPF loan requires to be repaid within 36 months, failing which the interest rate rise by 6%.
- The PL amount can be rather high, going up to Rs 25 lakh and even more, depending on your income and also the repayment of any loan history.
Although, a PPF loan restricts the loan amount to 25% of the a/c balance at the end of 2 FY preceding the year in which you apply for the loan.
Source: SBI & Post office