PPF's attractiveness as a saving tool has been further enhanced as for the ongoing quarter i.e. October-December 2018, government in line with the 10-year benchmark bond yield has revised rates higher to 8% per annum. And further categorized as an 'EEE' product with tax rebate on investment contributions, interest earned and maturity proceeds, the investment is undoubtedly a tax-efficient avenue that helps in accumulating funds for retirement. Nonetheless, in case there arises some unforeseen financial crisis, you are also allowed to use the PPF money before the long mandatory lock-in period of 15 years comes to an end.
Loan from PPF account is allowed after one year: For securing loan against your PPF account, there is defined a timeline i.e. such a loan can be availed only after the end of one financial year, after the end of the year in which investor subscribed to the PPF scheme for the first time. Say in a case when you had enrolled in the PPF scheme during 2016-17 financial year, then loan against PPF account will be granted for the first time during the financial year beginning April 1, 2018.
Amount of loan granted is pegged at 25% of the outstanding balance as at the end of the second year. So an applicant applying for loan during FY 2018-19 will be eligible for loan amount equivalent to 25% of the balance amount as on March 31, 2017.
Loan against PPF is available for 5 financial years, after the end of the financial year in which the PPF scheme was subscribed to. So, in case of the above example wherein the new account was opened during 2016-17, an individual can apply for PPF loan in form D until FY 2022-23.
Interest @ 2% is payable on the loan amount on an annual basis. Further, the PPF subscriber will lose interest component on the loan amount taken. The loan repayment tenure stretches to 36 months from the month end in which the loan was availed. And in a case, when you fail to repay the loan amount, a penalty of 6% per annum is payable on the amount.
Also, in a case when interest is left unpaid, it can be adjusted against the balance in the PPF account.