The Public Provident Fund (PPF) is one of the most trusted long-term investment options in India. Backed by the Government of India, it offers guaranteed returns with tax benefits. However, the biggest limitation with PPF is its lock-in period of 15 years. But life is unpredictable—emergencies can happen. So what if you need money before maturity?
Don’t worry! PPF allows both loan and partial withdrawal options under specific conditions. But the real confusion is—which one should you choose? Loan or withdrawal? What’s more beneficial in terms of interest, rules, eligibility, and repayment?
Let’s break it all down in simple language so you can make the smartest decision without harming your savings goal.
What is PPF and Why Is It Popular?
The Public Provident Fund (PPF) was introduced in 1968 under the Public Provident Fund Act to encourage long-term savings. It offers:
- Attractive interest rates (currently 7.1% as of April–June 2025 1)
- Tax benefits under Section 80C
- Maturity amount is tax-free
- Government-guaranteed security
While it has a 15-year lock-in, it offers partial liquidity via loans and partial withdrawals, but only under defined rules.
Loan from PPF: Quick Money with Conditions
✅ When Can You Take a Loan from PPF?
You can take a loan from the 3rd to the end of the 6th financial year after opening your PPF account.
Example:
If you opened your account in FY 2021-22, you can apply for a loan anytime between FY 2023-24 to FY 2026-27.
✅ Loan Limit
- You can borrow up to 25% of the balance at the end of the 2nd financial year immediately preceding the loan year.
Example:
Loan in FY 2025-26 → Check balance as of March 31, 2024.
Suppose your balance was Rs. 2,00,000 → You can take Rs. 50,000 max (25%).
✅ Interest Rate on Loan
- Interest charged is 1% above the prevailing PPF interest rate.
- So if PPF interest is 7.1%, the loan interest = 8.1% per annum (simple interest).
- Interest is not compounding and is calculated monthly.
✅ Repayment Rules
- Principal to be repaid in 36 months (3 years).
- After the principal is paid, interest must be paid within 2 months.
- If not repaid within time, interest rises to 6% above PPF rate (i.e. 13.1% currently) 2.
✅ Multiple Loans
- Only one loan can be active at a time.
- You can take a second loan only after repaying the first, and only before the 6th year ends.
Partial Withdrawal from PPF: Safe but Limited
✅ When Can You Withdraw from PPF?
You can partially withdraw from the 7th financial year onwards.
Example:
If the account was opened in FY 2021-22, withdrawal is allowed from FY 2027-28.
✅ How Much Can You Withdraw?
- You can withdraw up to 50% of the balance at the end of the 4th financial year immediately preceding the year of withdrawal, or 50% of the balance at the end of the previous year, whichever is lower.
Example:
Withdrawal in FY 2028-29 → Look at the balance on March 31, 2025 and March 31, 2028.
If balances were Rs. 4,00,000 and Rs. 6,00,000 respectively → 50% of Rs. 4,00,000 = Rs. 2,00,000 is the limit.
✅ Withdrawal Frequency
- Only one withdrawal is allowed per financial year.
- No interest is charged; this is your own money, not a loan.
Loan vs Withdrawal: Key Differences & Comparison
| Feature | PPF Loan | PPF Partial Withdrawal |
| Availability | 3rd to 6th year | From 7th year onwards |
| Maximum Amount | 25% of 2nd year balance | 50% of lower of 4th or last year |
| Interest Rate | 1% above PPF interest (now 8.1%) | No interest |
| Repayment Required | Yes, within 36 months | No |
| Impact on Future Growth | None (if repaid on time) | Reduces PPF corpus |
| Number of Times Allowed | Multiple (but only one at a time) | Once a year |
| Documentation | Simple loan form | Form C with proof |
Which One Should You Choose?
This depends on when you need the money and what’s your financial plan. Let’s break it down:
✅ Choose Loan from PPF If:
- You’re between the 3rd and 6th year of your account.
- You need money urgently but want to keep your PPF corpus intact in the long term.
- You can repay in 3 years comfortably.
Why? Because the 8.1% interest on loan is better than taking a personal loan at 12%–15%. Plus, your main PPF corpus continues to grow.
✅ Choose Withdrawal from PPF If:
- You are in 7th year or later of your PPF account.
- You don’t want to deal with repayment.
- You need a large chunk of money, and the 50% withdrawal rule gives a bigger amount than the loan.
Why? Because it’s your own money, there’s no interest, no repayment, and fewer complications.
Full Calculation Example: Loan vs Withdrawal Scenario
Let’s take a real-life example to understand the impact.
You opened a PPF account in April 2021.
Current year: FY 2025-26 (5th year)
PPF Interest: 7.1% per annum
Balance as of March 31, 2024: Rs. 2,00,000
👉 Case 1: Taking a Loan
- Max Loan: 25% of Rs. 2,00,000 = Rs. 50,000
- Interest: 1% above PPF = 8.1%
- Repayment: Over 3 years = Rs. 50,000/36 months = Rs. 1,389/month
- Total Interest (approx): Rs. 6,750
- Total repayment = Rs. 56,750
Impact: Your main balance keeps growing. You just repay a small extra amount.
👉 Case 2: Partial Withdrawal in FY 2028-29
- Balance on March 31, 2025 = Rs. 4,00,000
- Balance on March 31, 2028 = Rs. 6,00,000
- 50% of lower = Rs. 2,00,000 max withdrawal
Impact: You don’t repay anything. But your PPF corpus reduces, and you lose interest on Rs. 2 lakh for the remaining years.
Lost Interest (7.1% for 7 years):
Rs. 2,00,000 × 7.1% × 7 = approx. Rs. 99,400 lost growth.
So even though withdrawal is interest-free, it hurts long-term wealth creation.
Important Points You Must Remember
- You cannot take both loan and withdrawal at the same time.
- Loan is not available after 6th year, so plan.
- If you default on loan repayment, you pay a hefty 6% extra interest.
- Use the Form D for a loan application and Form C for a withdrawal.
- Don’t misuse PPF loan for luxuries—it is meant for emergencies or urgent needs.
Conclusion: Loan or Withdrawal — Use PPF Smartly
Your PPF account is not just a savings tool—it’s your financial backup for the future. It also helps you in emergencies, but you must know when and how to access it wisely.
If you need funds in the initial years and can repay, taking a PPF loan is smarter, as it keeps your main savings growing. But if you’re later in the term and cannot repay, a partial withdrawal gives stress-free access to funds.
Either way, understand the rules, interest, and future impact before making a decision.
Treat your PPF like a long-term partner—respect it, and it will secure your future.
