Loan Against PPF: Eligibility, Limits, and Repayment Rules

A loan against a PPF account lets you borrow up to 25% of your Public Provident Fund balance at 1% interest per annum, available between the third and sixth financial years of the account. The balance itself stands as collateral and keeps earning its usual PPF interest while the loan is outstanding, which is what makes this one of the cheapest borrowing options an Indian saver has access to.¹

When You Become Eligible

Under the Public Provident Fund Scheme, 2019, the loan facility opens once one full year has passed from the end of the financial year of your first deposit. If you opened and funded your account in Year 1, you can apply starting in Year 3. The window closes before the end of Year 6, which is five years from the end of the initial subscription year.¹

From the seventh financial year, the loan option disappears and a partial withdrawal facility takes its place.² A guardian operating a PPF account for a minor can also apply for a loan during the eligible window, provided the borrowing benefits the child.

How Much You Can Borrow

The maximum loan is 25% of the balance at the end of the second financial year immediately preceding the year of application. Apply in Year 5, and the ceiling is 25% of your closing balance at the end of Year 3. The amount must be in whole rupees.¹

Because of the two-year lookback, recent deposits don’t lift your limit. What you contributed early in the account’s life determines what you can borrow today.

Interest Rate

The rate on a PPF loan is a flat 1% per annum on the principal borrowed, independent of the rate your PPF balance earns. With PPF paying 7.1% for 2026, you are effectively borrowing against your own savings at a cost far below any bank personal loan.¹

Interest accrues from the first day of the month after you receive the loan until the last day of the month in which you clear the final principal repayment. Your PPF balance continues to earn its full rate throughout, so the net cost of the borrowing is minimal.

How to Apply

Submit the prescribed loan application at the bank branch or post office where your account is held. Under the 2019 Scheme this is Form-2, though some institutions still use Form D from the earlier scheme.³ The form asks for your account number, the loan amount in figures and words, and your signature matching the specimen on record.

Bring your PPF passbook so the branch can verify transaction history and confirm the eligible ceiling. Once the officer confirms the requested amount falls within 25% of the qualifying balance, the loan is sanctioned and the entry is recorded in the passbook.

How Repayment Works

You have 36 months from the first day of the month after loan sanction to repay the principal in full. Repayment can be in installments or a single lump sum.¹

The order matters. The full principal has to be cleared first; only after that will the branch accept interest payments. Once the principal is settled, the 1% interest is paid in no more than two monthly installments.¹

If You Miss the 36-Month Deadline

Crossing the deadline is expensive. The rate on any outstanding balance jumps from 1% to 6% per annum, and the higher rate applies retroactively from the first day of the month following disbursement until you finally clear the balance. Unpaid interest can be debited directly from your PPF account at the end of each year.¹

One Loan at a Time

A second loan is not permitted while an earlier one remains outstanding. The first, including interest, has to be fully repaid before a fresh loan can be sanctioned.¹ Plan accordingly if you expect to need funds more than once in the eligible window.

Loan or Partial Withdrawal

The two facilities do not overlap. The loan option runs from Year 3 to Year 6; partial withdrawals become available from the seventh year onward. A loan has to be repaid with interest, whereas a withdrawal permanently reduces your balance and carries no repayment obligation.

Withdrawals allow up to 50% of the balance at the end of the fourth year preceding the withdrawal year, or at the end of the preceding year, whichever is lower. Only one withdrawal is allowed per year, and any outstanding loan is deducted before the withdrawal amount is calculated.¹ A loan preserves your corpus and its compounding; a withdrawal gives you a larger sum but permanently shrinks what you’ll have at maturity.

Inactive Accounts

You cannot borrow against a PPF account that has gone inactive. The loan facility is only available where at least one deposit has been made in every financial year. Missing the ₹500 minimum annual deposit renders the account inactive.

To revive it, submit a written request to your branch along with:

₹500 for each year the account was inactive, plus ₹500 for the current financial year
A penalty of ₹50 for each lapsed year

Revival is possible only if the 15-year lock-in has not already expired. Once reactivated, and provided you are still inside the Year 3 to Year 6 window, a loan can be applied for normally.

If the Account Holder Dies With a Loan Outstanding

If the account holder dies before repaying, the nominee or legal heir becomes responsible for the accrued interest. The outstanding interest is adjusted at the time of final closure, deducted from the balance before the remaining funds are paid to the nominee.¹ No separate repayments are required from the nominee; the adjustment happens automatically during settlement.

Tax Treatment

Borrowing against your PPF is not taxable income, because the money is your own balance rather than fresh earnings. The loan does not disturb the Section 80C deduction you claimed on your original contributions, and the account keeps its exempt-exempt-exempt status through the loan period. Repayments do not qualify for any separate deduction. You are restoring your own balance, not making a new investment.

1
National Savings Institute. Public Provident Fund Scheme
2
National Savings Institute. Public Provident Fund Account
3
National Savings Institute. Form D – Application for Loan Under Public Provident Fund Scheme