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National Savings Certificates (NSC)

National Savings Certificates or NSCs are a post office investment scheme supported by goverment. As supported by government its considered to be a safe investment. The investment in NSC's are deductible u/s 80C within the overall limit of Rs. 150000( limit increased from the financial year 2014-15), so we can say that NSC's are safe tax saving investment options. NSC's had been the most common and popular tax saving investment options during past many years and are still very popular among middle aged and older generation.

Investment Amount

NSC's are available in Rs. 100, 500, 1000, 5000 and 10000 denominations. There is no upper limit for investment in NSC but Section 80C deduction will be available upto Rs. 150000 only. Minimum amount that can be invested is just Rs. 100. If I want to invest Rs. 40000 in NSC, I will buy four certificates of Rs. 10000 each.

Maturity period 

NSC investments are for much shorter period as compared to investments in PPF. This shorter period is one of the advantages of NSC investments. Presently there are two types of National Savings Certificates having maturity period of 5 years and 10 years. NSC VIII issue have maturity period of five years and NSC IX issue have maturity period of 10 years.

Interest on NSC

From 01/04/2013 NSC investments are providing interest at the rate 8.5% and 8.8% yearly. Interest rate is 8.5% for certificates having 5 years maturity and 8.8 % for certificates having 10 years maturity period. Interest on NSC is compounded six monthly, means interest earned for 6 months is reinvested in NSCs and thereby added to your investment and for the next six months you get interest on the increased figure.

From Financial year 2016-17 government has reduced the interest rates on small savings schemes. The interest rate on 5 year NSC has been reduced to 8.1% from 8.5%.

Rate of interest on NSC is fixed for the entire period of your investment.

Tax implications

NSC investments are eligible for deduction u/s 80C within the overall limit of Rs. 150000.
A very important thing to know is that interest on NSC is taxable. Many of us are not aware of this fact. Investors must include the interest earned from NSC in their total income as income from other sources. As the interest is reinvested in NSC, the interest part is also eligible for deduction u/s 80C with in the overall limit of 150000.

For example:
Mr. X invests only in NSC for tax savings. He invested Rs. 100000 in NSC having maturity of 5 years on 31st March 2013. So for the next year ie. financial year 2013-14 interest earned will be Rs. 8680 and this shall be declared as income from other sources in Income Tax return of Mr. X. This amount of Rs. 8680 will also qualify for deduction u/s 80C. Thus during the financial year 2013-14 Mr. X shall invest in NSC only Rs. 91320 (100000-8680) to complete his tax savings of Rs. 100000.

NSC  Advantages-
  1. NSC are highly safe investments as these are supported by government.
  2. Interest earned on NSC qualifies for deduction u/s 80C in subsequent years.
  3. There is no TDS on returns.
  4. NSC are accepted by banks as collateral security against bank loans.
  5. Minimum investment is just Rs. 100.
  6. Funds are blocked for a short period of 5 years.

NSC  Disadvantages-
  1. The only negative part - NSC interest is taxable.
  2. Presently NSC investment are not supported with online investment and redemption facility. One needs to go to post office for making an investment in NSC.

You may also like:
Public Provident Fund(PPF)
Equity Linked Savings Schemes(ELSS)
Fixed Deposits(FDs) with Tax benefits
Some Tax Planning Tips

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