A loan against PPF costs 1% a year and must be repaid in 36 months. A loan against a PMVVY policy is an LIC policy loan of up to 75% of the purchase price. Both come out of what your family receives if you die with the loan unpaid. On PMVVY the death benefit is only the purchase price, so what is left after the loan is settled can be close to nothing.
In short:
- A loan against PPF is charged at 1% a year if you repay within 36 months, and 6% if you do not. The 6% runs from the first day of the month after you took the loan, not from the day you missed it.
- You can borrow up to 25% of what stood to your credit at the end of the second preceding year. Not 25% of today’s balance.
- A loan against a PMVVY policy is available only after three completed policy years, up to 75% of the Purchase Price, with the policy assigned absolutely to LIC.
- On both, the outstanding loan and interest are deducted from the proceeds before your family is paid. On PMVVY that can leave them with nothing.
That last point is not a scare story. It is written into the scheme rules and the policy document, in plain words. Know it before you sign a loan application.
Rates in this article are as notified for Q3 FY 2026-27 (1 October to 31 December 2026), Ministry of Finance, Department of Economic Affairs, F.No. 1/4/2019-NS dated 30 September 2026. Rates are set quarterly and do change — check the notification before you act on a number here.
Two separate products are covered here, and mixing them up is the most common error in this area. First, PMVVY (Pradhan Mantri Vaya Vandana Yojana) is closed to new purchase. LIC lists Plan 856, UIN 512G336V01, on its withdrawn plans page, and Cabinet approval extended sale only up to 31 March 2023. This section is for people who already hold a policy.
The loan against PPF is 1%. Not 1% above your deposit rate.
This is the part most people get wrong, often in the wrong direction. A loan against PPF is provided by the scheme itself. Interest is 1% a year if you repay within 36 months. If you don’t, it jumps to 6%. Source: Public Provident Fund Scheme 2019, G.S.R. 915(E), 12 December 2019, paragraph 9(1) and 9(2).
PPF pays 7.1% a year for Q3 FY 2026-27. So the scheme loan costs you 1% while your money keeps earning 7.1%. You borrow cheap from yourself.
Say Mrs. Sharma’s PPF balance stood at ₹6,00,000 at the end of the second preceding year. She applies in the fifth year of her account. The maximum she can borrow is 25% of that, so ₹1,50,000. Loan interest at 1% on that, for one year: ₹1,500. The same ₹1,50,000 stays inside her PPF and keeps earning 7.1%: ₹10,650. Difference in her pocket: ₹9,150, before tax, which is tax-free because PPF interest is exempt at every stage.
That is why the loan is worth understanding properly. The catch is not the rate.
Can I borrow against my PPF? Three rules that are widely reported wrongly
The 25% is not of your current balance. It is 25% of what stood to your credit at the end of the second preceding year, not 25% of the balance you see today, and it does not rise as your balance grows. G.S.R. 915(E) paragraph 8(1) says the loan shall not exceed 25% of the amount that stood to your credit at the end of the second year immediately preceding the year in which you apply. It looks backwards on purpose.
When you can apply. You may apply at any time after one year from the end of the year in which you first subscribed, and before five years from the end of that year. Most people have this in their third year through their sixth.
Joint accounts and HUFs are out. The scheme does not allow a joint PPF account, and an HUF cannot open one. If your son’s name is not on the account, he cannot borrow against it either.
The PPF math has a catch that is easy to miss
The ₹9,150 in the example above is real. But you still owe ₹1,50,000 at the end. Repaying it takes that ₹1,50,000 out of the account, and the account has to earn 7.1% all over again to get back to where it was. Your eventual corpus is permanently smaller by the amount you borrowed and repaid. It is cheap money. It is not free money.
And the second trap is nastier than it looks. If the loan is not repaid within 36 months, interest on the outstanding amount is charged at 6% instead of 1%, and that 6% applies from the first day of the month after you took the loan, right through to the month it is finally repaid. Not from the day you missed. From the start. On ₹1,50,000 that is ₹9,000 instead of ₹1,500, for the whole period. Set a reminder. Put it in your daughter’s phone, not just your own.
What happens to a PPF loan after death
Paragraph 9(6) of the scheme says it directly. In case of death of the account holder, the nominee or legal heir is liable to pay interest on the loan taken but not repaid before death, and that due interest is adjusted at final closure of the account.
The loan does not die with you. It gets settled out of your own savings, and your family receives what is left.
Also worth knowing: nomination is not automatic ownership, and what your nominee ends up with depends on what you wrote on the form.
The choice is genuinely yours. Section 4(1) of the Government Savings Promotion Act, 1873, as substituted by the Finance Act, 2018 (13 of 2018), s.119, with effect from 1 April 2018, says the nominee is entitled “to receive the sum due, as an owner or a trustee, and to the extent, as may be specified by the depositor at the time of making nomination”. Rule 14(1)(c) of the Government Savings Promotion General Rules, 2018 (G.S.R. 1003(E)) asks for the same thing on the form — “whether the nominee shall receive the amount as a beneficiary with absolute and exclusive right of ownership, or as a trustee for the benefit of the legal heirs of depositor” — and Form 10 carries the field headed “Nature of entitlement Trustee or owner”.
One more thing, if your nomination is an old one. Before 1 April 2018 the words “as an owner or a trustee” were not in section 4(1) at all — they were inserted by the Finance Act, 2018, s.119 — and the old Form 10 had no field in which to record a capacity. So on a nomination made in 2014, or any year before that date, there is nothing to declare and the nominee takes the money as trustee for the legal heirs, full stop.
(This page previously said the entry can only read Owner where the nominee is a legal heir, citing an HDFC SCSS FAQ. That condition is not in section 4(1) and not in the Rules. It is a bank FAQ for a different scheme. The correction matters if you have already filled the form.)
What has not changed is what happens next. Section 4A(1) says that where a nomination is in force at the time of death, “the deposit shall be paid to the nominee”. Section 5 says any payment made in accordance with the Act “shall be a full discharge from all further liability in respect of the money so paid”. So an Owner declaration does not fail, and the account office is discharged whoever it pays.
The family’s claim survives, but only against the nominee personally. The same section 5 provides that “Nothing herein contained precludes any executor or administrator, or other representative of the deceased, from recovering from the person receiving the same the amount remaining in his hands after deducting the amount of all debts or other demands lawfully paid or discharged by him in due course of administration.” And that “Every creditor or claimant against the estate of the deceased may recover his debt or claim out of the money paid under this Act” — in the same manner and to the same extent “as if that person had obtained letters of administration of the estate of the deceased”.
So read it like this. The bank is safe. The nominee is paid. And the heirs can take the money back out of the nominee’s hands, less whatever he spent properly in administering the estate. The exposure is not that your entry was void. It is that a nominee who wrote Owner and is not a legal heir may have to hand the money over anyway. We looked for a court decision on section 4(1)’s owner election and could not find one either way.
Which is why the advice is unchanged and only the reason has moved. Nominate a legal heir. It is the safe course under either reading, and it spares your family the argument. And for anything touching a specific estate, take a lawyer’s view.
Where there is no nomination at all, payment up to ₹5 lakh may be released to a person who satisfies the authorised officer, but the paperwork runs to affidavit on Form 13, a letter of disclaimer on Form 14 and a bond of indemnity on Form 15, together, and there is a six-month condition attached to it as well. That is why families get caught out. Above ₹5 lakh, a Succession Certificate is required. Start early.
The loan against PMVVY is a policy loan, not a deposit loan
A loan against PMVVY is an LIC policy loan secured by absolute assignment of the policy document, not a deposit loan. PMVVY is an LIC annuity policy, not a deposit account, and banks do not treat it as deposit-backed security. RBI’s Master Circular on Loans and Advances (DBOD.No.Dir.BC.10/13.03.00/2015-16, dated 1 July 2015), para 2.1.2.5, carves life insurance policies out of its definition of loans and advances, for the limited purpose of a director-related prohibition under Section 20 of the Banking Regulation Act, 1949.
The terms are short. Only after three completed policy years. Maximum 75% of the Purchase Price. Interest is whatever LIC specifies when the loan is made, on an IRDAI-approved method. LIC has not published the current rate, so do not accept a number from a blog, an agent, or an old article. Ask LIC for the rate applicable on the date you apply.
Condition 3(iii) then says that on surrender, on death, or on maturity, LIC is entitled to deduct the outstanding loan and any outstanding interest from the policy moneys.
Now the arithmetic that matters. Suppose the purchase price was ₹3,00,000 and she took the maximum loan after year 3: ₹2,25,000. On death, the Death Benefit is defined as the Purchase Price, so the family is looking at ₹3,00,000. LIC takes the ₹2,25,000 plus outstanding interest off the top. Depending on how long the loan ran, the family receives a small fraction of the purchase price, or nothing at all.
A 10-year policy. A loan taken in year 4 that is still running in year 10. That is not an edge case, it is the normal shape of this product.
What a bank loan costs, and why I will not quote it as a rule
There is no RBI or government notification prescribing an interest rate or a loan-to-value ratio for a loan against a PPF account. Every bank sets its own. So if you have read somewhere that such a loan is priced at “1% to 2% above the deposit rate”, treat that as marketing shorthand, not a rule. It is unsourced, and for the scheme loan it is exactly backwards.
Bank-specific illustration, not a market rate: SBI’s retail interest-rates page, headed w.e.f. 15.08.2025 and last updated 16-12-2025, publishes a loan against NSC/KVP at 8.70% one-year MCLR plus 2.50%, so 11.20% effective. That is SBI’s price for a pledge of National Savings Certificates or Kisan Vikas Patras, on that page, on that date. Not a PPF rate, not a market rate.
Banks that offer a loan against a PPF generally offer the same statutory terms above: 25%, 1%/6%, 36 months. Ask your own bank and read what it says on paper.
The tax position, briefly
The Income-tax Act, 1961 was repealed on 1 April 2026, and the 2025 Act applies from tax year 2026-27. The deduction you knew as Section 80C is now Section 123 read with Schedule XV of the Income-tax Act, 2025, capped at ₹1,50,000 per year. It is available only if you opt for the old regime, and the new regime is the default. If you do nothing, the deduction is not allowed.
Two things people believe wrongly. Loan repayment is not deductible: Schedule XV paragraph 6(b) says a contribution to a fund does not include sums in repayment of loan. And interest on the loan is not deductible either. Section 34(1) of the 2025 Act allows a deduction only for expenditure laid out wholly and exclusively for the business or profession, and expressly excludes personal expenses. So the interest is a genuine cost to you, with no tax shield. Our guide to using Section 80C without overpaying tax covers the deduction side.
What to do this month
- If you have a PPF loan running, write down the 36-month deadline from the date you took it. Because the 6% runs from day one, that is the single cheapest saving available to you.
- Before taking any new loan, ask for the interest in writing, and check whether it is the scheme loan at 1%/6% or a bank loan at a floating rate. They are not comparable.
- Read your nomination form again, and check whether your nominee is a legal heir. If they are, Owner is right and the money is theirs. If they are not, write Trustee — an Owner entry for a non-heir does not stop the legal heirs recovering the money from the nominee’s hands, and that is a fight worth not having. If the nomination was made before 1 April 2018, there was no capacity to declare in the first place, and the nominee holds as trustee either way.
- If you hold a PMVVY policy, write down the loan balance today, and talk to LIC about repaying it if you can. Every rupee left outstanding is a rupee deducted from what your family gets.
- If you are an attorney or guardian under a power of attorney, do not assume you can pledge or borrow against a senior citizen’s account. The scheme requires the depositor’s own application on Form 2. Whether your specific POA covers pledging is a legal question for a lawyer.
- Above ₹5 lakh in any small savings claim without a nomination, start the Succession Certificate process early. It takes longer than families expect.
Questions people ask
How much can I borrow against my PPF account?
Up to 25% of the amount that stood to your credit at the end of the second year immediately preceding the year in which you apply, under paragraph 8(1) of the Public Provident Fund Scheme, 2019 (G.S.R. 915(E)). It is not 25% of your present balance, and it does not rise as your balance grows.
What is the interest rate on a loan against PPF?
1% per annum on the principal if the loan is repaid within 36 months, and 6% per annum if it is not, under paragraph 9(2) of the Public Provident Fund Scheme, 2019. The 6% applies from the first day of the month following the month in which the loan was obtained. A bank lending against a pledged account sets its own rate; there is no notified rate.
Who can borrow against a PPF account?
The account holder applies on Form 2, after one year from the end of the year of initial subscription and before five years from the end of that year. The scheme does not permit a joint PPF account, an HUF cannot open one, and an attorney or guardian cannot pledge the account on the depositor’s behalf.
Can I take a loan against a PMVVY policy?
Yes, as an LIC policy loan, not a deposit loan. The facility opens only after three completed policy years, the maximum is 75% of the Purchase Price, and the policy must be assigned absolutely to and held by LIC as security. LIC specifies the interest rate when the loan is made, on an IRDAI-approved method, and does not publish a current rate.
What happens to a PPF loan after the account holder’s death?
The loan is not extinguished. Under paragraph 9(6) of the scheme, the nominee or legal heir is liable to pay interest on the loan taken but not repaid before death, and that due interest is adjusted at the final closure of the account. The family receives the balance that is left.
Does a nominee automatically own the money in a PPF account?
Not by default, and not automatically either. It depends on your nomination form.
On a form made on or after 1 April 2018, the capacity is yours to pick. Section 4(1) of the Government Savings Promotion Act, 1873 provides that the nominee is entitled “to receive the sum due, as an owner or a trustee, and to the extent, as may be specified by the depositor at the time of making nomination”, and rule 14(1)(c) of the Government Savings Promotion General Rules, 2018 records it on Form 10 under “Nature of entitlement Trustee or owner”.
Declaring Owner for a nominee who is not a legal heir does not invalidate the entry, and under section 5 payment to the nominee is “a full discharge from all further liability in respect of the money so paid”. But section 5 also lets an executor or the legal heirs recover “the amount remaining in his hands”, so that nominee can still be made to hand the money over. On a form made before 1 April 2018 there was no election to make at all, and the nominee holds as trustee for the legal heirs.
Nominate a legal heir, and let the entry read trustee.
This is general information on scheme rules, not legal or tax advice. Rates change and lenders set their own pricing. For nomination, the ₹5 lakh threshold, POA scope, or anything touching a specific estate, speak to a qualified lawyer or chartered accountant.
