You can borrow against your PPF balance from Year 3 to Year 6. Understand the eligibility, interest rate, maximum amount, and repayment rules.
The PPF scheme allows you to take a loan against your PPF balance starting from the 3rd financial year up to the 6th financial year of account opening. This facility is designed to provide liquidity to PPF holders during the early years when partial withdrawals are not yet available (partial withdrawal starts from Year 7).
For example, if you opened your PPF account in FY 2024-25, you can apply for a loan from FY 2026-27 (Year 3) through FY 2029-30 (Year 6). From FY 2030-31 (Year 7), the loan facility is replaced by the partial withdrawal facility, which is more advantageous.
The maximum loan amount is 25% of the balance at the end of the 2nd preceding financial year. Here is how the calculation works:
Suppose you want to take a loan in FY 2026-27 (Year 3). The reference balance is the balance at the end of FY 2024-25 (the 2nd preceding year). If your PPF balance at the end of FY 2024-25 was Rs 3,21,350, then:
| Loan Year | Reference Year (2nd preceding FY) | PPF Balance (Example) | Max Loan (25%) |
|---|---|---|---|
| Year 3 (FY 2026-27) | End of Year 1 (FY 2024-25) | Rs 1,60,650 | Rs 40,163 |
| Year 4 (FY 2027-28) | End of Year 2 (FY 2025-26) | Rs 3,32,761 | Rs 83,190 |
| Year 5 (FY 2028-29) | End of Year 3 (FY 2026-27) | Rs 5,17,425 | Rs 1,29,356 |
| Year 6 (FY 2029-30) | End of Year 4 (FY 2027-28) | Rs 7,15,784 | Rs 1,78,946 |
Note: The above example assumes an annual deposit of Rs 1,50,000 at 7.1% interest.
The interest rate on a PPF loan is 1% per annum above the prevailing PPF interest rate. Since the current PPF rate is 7.1%, the loan interest rate is 8.1% per annum.
The interest on the PPF loan is calculated on the outstanding loan principal. It is not compounded — simple interest is charged for the loan period.
The PPF loan must be repaid in a specific manner. Understanding these rules is essential to avoid penalties:
From Year 7 onward, you have the option of partial withdrawal instead of a loan. Here is a comparison to help you decide:
| Feature | PPF Loan (Year 3-6) | Partial Withdrawal (Year 7+) |
|---|---|---|
| Availability | Year 3 to Year 6 only | Year 7 onward |
| Maximum Amount | 25% of balance (2nd preceding year) | 50% of balance (4th preceding year or preceding year, whichever is lower) |
| Cost | 8.1% interest (PPF rate + 1%) | Free — no interest or cost |
| Repayment | Must repay within 36 months + interest | No repayment needed — it is your money |
| Tax treatment | Loan — not taxable | Tax-free withdrawal |
| Impact on PPF balance | Temporary reduction (restored on repayment) | Permanent reduction |
| Recommendation | Avoid if possible — you pay 8.1% to borrow your own money earning 7.1% | Much better option — free access to your own funds |
The PPF loan facility is rarely recommended because you are effectively paying 8.1% interest to borrow money from yourself that is only earning 7.1%. You lose 1% per annum on the borrowed amount. If you can wait until Year 7, partial withdrawal is always the better option since it is free and tax-free.
Use our free PPF calculator to see how your investments grow with guaranteed 7.1% tax-free returns.
Calculate PPF Returns →The interest rate on a PPF loan is 1% per annum above the prevailing PPF interest rate. Since the current PPF rate is 7.1%, the loan interest rate is 8.1% per annum. If the loan is not repaid within 36 months, the interest rate increases to PPF rate + 6% (13.1%), making it very expensive.
You can borrow up to 25% of the balance at the end of the 2nd preceding financial year. For example, if you apply for a loan in Year 4 and your balance at the end of Year 2 was Rs 3,32,761, the maximum loan is 25% of Rs 3,32,761 = Rs 83,190. The maximum grows each year as your balance increases.
No, the PPF loan facility is available only from Year 3 to Year 6. From Year 7 onward, the loan facility is replaced by the partial withdrawal facility, which is more beneficial — you can withdraw up to 50% of your balance with no interest cost and no repayment obligation.
If the PPF loan principal is not repaid within 36 months, the outstanding amount is treated as an irregular withdrawal. The interest rate on the unpaid loan increases from PPF+1% (8.1%) to PPF+6% (13.1%) from the original date of loan disbursement. This penalty interest will be deducted from your PPF balance at maturity.
PPF loan at 8.1% is cheaper than most personal loans (10-18% interest). However, you are borrowing your own money and losing the compounding benefit. For small amounts needed for 1-2 years, a PPF loan is acceptable. For larger needs, compare the effective cost with other options. Remember, from Year 7, partial withdrawal is free and much better than any loan.