Are you forecasting to purchase your home and require instant funds? You can take a short-term home loan associated with PPF.
Do you know why? PPF is an investment structure that is managed by the government and assurances good returns. Known to be an ideal long-term investment choice, PPF only needs a minimum investment of Rs. 500 in one financial year and contains the following saving systems launched by the government to assist people save money:
1. Senior Citizens Savings Scheme (SCSS): This scheme is obtainable to Indian citizens that are above 60 years old
2. Sukanya Samriddhi Scheme (SSS): This scheme is intended to offer profits to a girl child and can be availed by the parents of a girl child who is below 10 years
3. National Savings Certificate (NSC): It is a tax-saving investment plan that can be availed by any Indian citizen from the adjacent post office
Short-Term Home Loan against PPF Account
The PPF scheme proposes an interest rate of 7.1% p.a. as it falls under the Exempt-Exempt-Exempt (EEE) type of tax policy. The maturity amount and the principal amount and even the interest received are excused from tax. Though the PPF account has a lock-in period of 15 years, it permits the investors to avail of a short-term personal loan. This loan is in contradiction of the amount they have already deposited and is accessible at an interest rate of 1%. This personal loan can be used to purchase your home creating it a short-term home loan.
Short-Term Home Loan Against PPF - uses & Features
The structures and benefits of taking a short-term home loan against a PPF account are:
1. No Warranty Required: You don’t need to initiate any security to avail a short-term home loan against PPF.
2. Short Repayment Tenure: The tenancy to repay the loan against PPF is short and the maximum tenancy is up to 36 months (3 years)
3. Low-Interest Rates: As associated with banks and NBFCs, the interest rate presented on a loan against PPF is moderately low and makes the repayment inexpensive.
4. Short Lock-In Period: You can avail of a loan against PPF anytime between the 3rd and the 6th financial year of original the account. Though, from the 7th year, you can incompletely withdraw the amount from your PPF account
5. Multiple Application: You can smear for a loan against PPF once in a financial year. However, you can apply again in the next financial year if you reimburse the entire loan availed before
Let us now move to know how we can take a short-term home loan against PPF.
Suitability Criteria to Avail Short-Term Home Loan against PPF Account
As stated above, PPF is a long-term investment scheme and permits incomplete withdrawal of the funds to the account holder only after the achievement of the lock-in period of minimum 6 years of investment. Though, if the account holder needs funds before the lock-in period, he can smear for a short-term loan in contradiction of PPF.
Interest Rate to get a Short-Term Home Loan In contradiction of PPF
In the past, the interest rate for deposits was 2% greater than the interest rate for short-term PPF loans. But as time went on, it was only 1% more than the interest rate on the deposit. The interest rate will only remain at 1% if you are successful in paying off the loan debt in the stipulated 36 months.
However, if you fail to reimburse the loan within a tenure of 36 months, the interest rate varies to 6% p.a from the disbursement date.
Interest Rate Calculation for Loan against PPF
An interest rate on the PPF loan is intended from the first day of the month during which the loan is occupied to the last day of the month during which the loan is refunded. For example, if you avail of the short-term home loan against the PPF account on 15th May 2021 and refund it on 18th July 2022, the interest rate will be priced from 1st May 2021 to 31st July 2022.
Amount of the short-term home loan protected by the PPF
A PPF account holder is only permitted to borrow a maximum of 25% of the value of his PPF account, or one-fourth of it. Additionally, this loan amount can only be used at the end of the second year, which is immediately prior to the year for which it is being applied.
Additionally, a loan secured by PPF may only be used once per fiscal year, and additional loans may only be granted once the first loan has been fully repaid. How to Smear for Short-Term Home Loan against PPF Account
The procedure to apply for a short-term home loan is simple and needs the following steps:
1. Get Form D from the port authority/bank where you have the PPF Account. Fill and succumb Form D and apply for a short-term home loan in contradiction of your PPF account
2. The form would require details like PPF account number, the amount you are crucial to borrow, etc. along with a responsibility that you will repay the account within 36 months
3. Also, the PPF account passbook should be surrounded by the form and should be succumbed to the post specialist/bank where you have your PPF account
Loan against PPF: Tax Benefits
If you avail loan against PPF, no tax assistances are available. However, tax benefits are obtainable if you have capitalized an amount in a PPF account. Any amount exploited in a Public Provident Fund with a maximum limit of Rs 1,50,000 is capable for tax deduction under section 80C of the Income Tax Act. Also, the interest received and returns are not taxable per Income Tax Act. Investment in PPF can be the best bet as it provides incredible returns and helps save tax and tax-free returns.
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