The Public Provident Fund or PPF is one of the most popular
investment choices for people. PPF works out to be an excellent retirement
option to save and put funds into. The EEE status that this instrument enjoys
increases the return on this investment substantially as compared to other
types of investment. Any investment made in PPF gets a deduction under Section
80C of the Income Tax Act up to Rs. 1,50,000. The interest earned on PPF is
exempt from tax. The scheme has no conditions or tax on maturity. Once matured,
the account can be extended for blocks of 5 years at a time. It is possible to
open PPF account both online and offline. You can open PPF account online
directly through the bank website.
One
of the major drawbacks however, of investing in PPF account is
the high lock in period of 15 years. This restricts withdrawals, especially in
cases of emergency. After the account crosses 7 financial years from the year
of opening, partial withdrawals are allowed from this account, giving marginal
liquidity when required. However, this too has conditions for withdrawal and
the amount that can actually be withdrawn.
However, to make it easy for the depositors, PPF allows depositors to take a loan against PPF from the balance in this account. Let us understand the details of taking a loan against the PPF balance.
Every PPF account holder is eligible to take a loan against
the balance in this account.
It is possible to take a loan beginning from the third
financial year from opening of the PPF account to the sixth financial year from
opening of the account. For example, if the account was opened on 18th October
2019, the financial year will be considered from 31st March 2020. This means
the third year would be from 2023-2024. Similarly, the sixth financial year
would be from 2026-2027. From 1st April 2027, partial withdrawals will be
allowed from PPF.
The loan amount is calculated at 25% of the balance in the
PPF account at the end of the second financial year. In the above example, the
second financial year would be 2021 to 2022.
The rate of interest on the loan is 2% more than the rate
charged for the PPF account. Even though the rate of PPF may be revised upwards
or downwards, the rate of interest on the loan remains the same till the end of
the tenure.
The PPF loan has to be repaid off within 36 months. There is
a penalty in case the amount is not repaid off completely within these 36
months i.e the rate of interest will increase to 6% over the prevailing PPF
rate as compared to 2% over the PPF rate.
One thing you must remember is if you want to do a partial
withdrawal from the PPF account, you need to repay the loan from PPF entirely.
However, to opt for this loan, no collateral or security is
required. The depositor needs to fill out a form and submit it to the bank or
the Post office where the account is managed.
The loan against PPF also provides significant flexibility.
The repayment can be done at any time and it is not necessary to repay this in
fixed installments. The complete repayment however, has to be done before 36
months.
