Need Money from PPF? Know When to Take Loan or Withdraw

Public Provident Fund (PPF) is a long-term savings plan by the government, known for its safe returns and tax benefits. Many Indians invest in PPF for their future needs like retirement or children’s education. But life is unpredictable, and sometimes money is needed before the 15-year lock-in period is complete. If your savings are stuck in PPF and you urgently need funds, what should you do?

There are two ways to get money from your PPF account before maturity:

1. Take a loan on PPF
2. Make a partial withdrawal

Both these options are different in rules, timing, interest, and their effect on your future savings. Let us understand each in very simple words.

What is a PPF Loan and When Can You Take It?

PPF allows you to take a short-term loan from your own balance. This is not like a bank loan with high interest. It is a low-interest loan for your emergency needs.

Rules for Taking a Loan from PPF:

• You can apply for a loan from the 3rd year to the 6th year after opening the PPF account.
  For example, if you opened your account in 2021-22, you can take a loan between 2023-24 to 2026-27.
• The loan amount can be up to 25% of the balance available at the end of the second year before you apply.
  So if you apply in 2024-25, the amount will be calculated based on your balance at the end of 2022-23.
• The interest on loan is just 1% higher than the current PPF interest rate.
  If PPF is giving 7.1%, your loan interest will be 8.1%.
• You need to repay the loan within 36 months (3 years).
  First, pay the principal amount, and then the interest (can be in up to two monthly payments).
• If you do not repay the principal in time, interest becomes 6% extra, not 1%.
  That means you’ll pay 13.1% (7.1% + 6%) if you delay repayment.

What is Partial Withdrawal from PPF?

This option lets you withdraw some of your own money from your PPF account. It is your money, so no interest or repayment is required.

Rules for Withdrawing Money from PPF:

• You can start partial withdrawal only from the 7th financial year of opening the account.
  If your PPF account started in 2018-19, you can withdraw from 2025-26.
• You can withdraw only once in a year.
• The maximum amount allowed is 50% of your PPF balance at the end of the 4th year before the year of withdrawal.
  For example, if you withdraw in 2026-27, the limit is based on balance as on March 31, 2023.
• No need to return the money after withdrawal.
• No interest is charged, because it is your own savings.

PPF Loan vs Withdrawal: How Each Affects Your Investment

To understand which option is better, we must see how they impact your total money in the long run.

If You Take a Loan:

• You continue to earn interest on the full balance in your PPF account.
• Only the loan amount is charged with a small extra interest (1% more).
• If repaid on time, there is almost no damage to your future savings.
• Loan gives short-term help without reducing your total corpus.

If You Withdraw Money:

• No repayment, no interest to pay.
• But your PPF balance gets reduced, which means less interest earned in the future.
• The final amount after 15 years will be lower than what you could have saved with full balance.
• Good for when you need money and cannot repay later.

Example: Which Option Makes More Sense?

Let’s understand with a simple example.

You have ₹5,00,000 in your PPF account. You need ₹1,00,000 urgently.

Option 1: Loan

• You take ₹1 lakh as loan.
• PPF interest rate: 7.1%. So loan interest = 8.1%.
• Your full ₹5 lakh continues to earn 7.1% interest.
• You repay ₹1 lakh in 3 years, with total interest cost of approx ₹2,500–₹3,000.
• After repayment, your full balance remains, and your savings grow as normal.

Option 2: Withdrawal

• You withdraw ₹1 lakh.
• No repayment, no interest.
• Now, your PPF balance is ₹4 lakh.
• Interest is calculated only on ₹4 lakh now, so future savings reduce.
• In 10 years, the difference in final amount could be more than ₹1.5 lakh due to compounding.

So, if you can repay, loan is cheaper and smarter. If you cannot repay, withdrawal is the better option.

Which Option Should You Choose Based on Your Situation?

✅ Choose Loan If:

• You need funds for short time (up to 3 years).
• You are in 3rd to 6th year of your PPF account.
• You are confident to repay the loan within 36 months.
• You want to protect your future savings.

✅ Choose Withdrawal If:

• You are in 7th year or later of your account.
• You need money but cannot repay.
• You don’t mind a reduced final corpus.
• You are okay with earning less interest in the future.

Few Extra Points to Keep in Mind

• You cannot take both loan and withdrawal at the same time.
• These options are available only on active PPF accounts.
• Check your PPF passbook or online account to know your balance and eligibility.
• These features are useful when you don’t want to break FD or take personal loan.

How to Apply for PPF Loan or Withdrawal?

• Visit your bank or post office where your PPF account is.
• Fill the Form D for loan or Form C for withdrawal.
• Submit with a copy of your PPF passbook or account statement.
• Nowadays, many banks offer online application through net banking.

Source: Zee Business, NSC, Ministry of Finance India