PPF – Loans and Withdrawals
Different between Loan and Withdrawal
Loan From PPF
Withdrawal of PPF amount
- Needs repayment
- Burden of interest payable
- Impacts future loan eligibility
- Impacts credit ratings
- Repayment is not required
- Impacts interest income in future
When to withdraw money / take loan
You should avail such loans / withdrawal facilities only when you are falling short of your finance and do not have any other option to achieve an important life goal such as child’s higher education or daughter’s marriage etc.
Such loans should not be availed to improve your life style or to buy a costly gadget. After all, this is the money that you have kept aside for your retirement.
Extracts of rules facilitating loan from PPF account
The PPF rulebook states it as follows:
“Notwithstanding the provisions of paragraph 9, any time after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made, a subscriber may, he so desires, apply in Form D or as near thereto as possible, together with his pass book to the Accounts Office for obtaining loan…”
Who can avail loan facility
You can take a loan from the fund in case of need. You don’t have to wait till you become eligible for withdrawals from the account.
In simple terms, the following are the steps to see how much loan you can avail.
- Say you opened your PPF account in August 2014.
- The end of the financial year when the initial subscription was made is March 31, 2015.
- The expiry of one year from the end of that financial year is March 31, 2016.
- So from March 31, 2016, until 5 years from March 31, 2015, that brings us to March 31, 2020, you are entitled to apply for a loan against your PPF balance.
Therefore to simply put, from the second year of opening the PPF account to the sixth year, as a PPF account holder you can take a loan
How much loan you can take is defined as follows:
“… A subscriber may, he so desires, apply in Form D or as near thereto as possible, together with his pass book to the Accounts Office for obtaining loan consisting of a sum of whole rupees not exceeding twenty five per cent of amount that stood to his credit at the ends of the second year immediately preceding the year in which the loan is applied for.”
However, the loan has to be repaid with interest at 2% per annum within 36 months, either in lump-sum or in installments.
It is noteworthy that now for a loan taken by the subscriber of a PPF account on or after December 1, 2011 a rate of interest of 2% per annum is levied.
You can take a second loan against your PPF account before the end of your sixth financial year, but your second loan can be taken only once your first loan is fully settled.
Withdrawals from my PPF account
Yes, you can make one withdrawal per year starting from your seventh year (through an application vide Form C). The first withdrawal can be done after the expiry of 5 full financial years from the end of the year in which your initial subscription was made.
The amount of withdrawal will be limited to 50% of the balance at credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower, as per the PPF rulebook.
Thereafter, you can make one withdrawal per year.
if you opened your PPF account on April 1, 2014, you can make your first withdrawal after April 1, 2020, and the amount of withdrawal will be limited to 50% of the balance as on – March 31, 2016, or the balance as on – March 31, 2019, whichever is lower; subject to loan taken on your PPF account.