Kolkata: PPF or Public Provident Fund is one of the most trusted long-term savings instruments that carries income tax benefits and a sovereign guarantee.
One can invest a minimum of Rs 500 and a maximum of Rs 1.5 lakh in PPF every financial year. However, the income tax benefits can accrue to those investors who are in the old tax regime. It has survived the transition of the country from a controlled economy to a market-driven one. It carries an initial lock-in period of 15 years. However, if a depositor needs funds desperately before the end of the 15-year period, one can withdraw funds. A depositor can also take loans from his/her own PPF account. Let’s have a look at how this loan facility works in PPF and who is eligible.
Who is eligible for a PPF loan?
There are three stages of taking money out from a PPF account. One, when the PPF account matures after 15 years. Anyone who PPF account is more than 15 years old can close the account and take out all the money, which will be free from income tax. Two, investors who have opened the PPF account at least five years ago, can take out a certain portion of the money from PPF account. These can be usually for emergency expenditure such as medical emergencies and meeting higher education costs. There is a third category of investors who fall in neither of the above categories and they can opt for loans from their PPF account. A depositor can take a loan from the PPF account between the third and sixth year of opening the account.
What is the max amount and repayment limit?
Loans from the PPF account cannot be repaid over a long term. It has to be fully repaid within 36 months. It is also worthy to note that those borrowers who pay off the loan completely before the expiry of 36 months from the date of taking the loan can take another loan before the sixth year of the PPF account opening.
There is also a rule that caps the amount of loan one can take through this route. It is 25% of the balance in the PPF account at the end of the second year.
Rate of interest on PPF loan
The rate of interest that a borrower has to pay on a loan from PPF is only 1% per annum. But this rate is applicable if the loan is fully repaid in 36 months. If not, the rate of interest payable zooms to annual rate of 6% from date of disbursement. Another significant point is that the no interest will be paid on the PPF savings during the entire repayment period.
