What is a National Savings Certificate (NSC)?

A government savings bond known as an NSC, or National Savings Certificate, is suitable for minor investments and tax relief. In order to help in nation-building, National Savings Certificates were initially established in the 1950s. The National Savings Certificate (NSC) is a fixed income investment scheme that you can open with any post office branch. The scheme is a Government of India initiative. It is a savings bond that encourages subscriber mainly small investors. NSC comes with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn you a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at a rate of 6.8% per annum. The interest rate is revised on a regular basis by the government. Any resident of India may purchase these certificates from any post office inside the country. It is a government-supported, low-risk program with a set return rate. Investors who don't like taking chances or people who want to grow their customer through a guaranteed return program usually choose this.

Previously, these were offered with two different maturity periods: one for a period of five years, and the other for a term of ten years. The 10-year National Savings Certificate is no longer offered as of the most recent update. The National Savings Certificate has no maximum investment amount, but deposits up to Rs. 1.5 lakhs in NSCs are eligible for a tax benefit under section 80C of the Income Tax Act.

National Savings Certificate (NSC) Interest Rates

The interest rates of NSC are announced every quarter. The interest rates of NSC from 2019 till date:

3 Tax Benefits of National Savings Certificates

NSC is not only is a safe avenue of investment for small to middle-income investors, but it also helps them reduce their tax outgo. There are three tax benefits of investing in National Savings certificates as explained below:

• Tax deduction on the amount invested: One of the most notable tax benefits of investing in National Savings certificates is that upto ₹1.5 lakh invested in them makes you eligible for tax deduction under Section 80C, as per the Income Tax Act 1961.
• Save tax on Interest: Interest earned on NSC is taxable under the head " Income from Other Sources ". However the interest is reinvested for the initial 4 years and therefore will not be chargeable to Income Tax and this reinvestment will be allowed as deduction u/s 80C of the Income Tax Act, 1961. Since the maturity period of NSC is five years, the interest can be re-invested only for four years. The interest earned in the fifth year comes in the hand of investor along with the maturity amount. So basically, the tax benefit is availed only on the initial first four years of the investment period. The interest earned in the fifth and final year is taxable.
• No Tax Deduction at Source (TDS): TDS does not apply on the interest amount of NSC, unlike fixed deposit.

Here is an example that shows the benefit of Section 80C deduction being received on the interest amount that is re-invested:

For instance, Ashish invested ₹ 50,000 in a 5 year NSC. Assuming an interest rate of 8%, the tax benefit that he can claim for the next 5 years would be as under:

Conclusion

Along with NSC, there are numerous additional tax-saving instruments available if you're looking for building wealth while getting tax benefits under Section 80C and Section 10(10D). To learn more, contact our trusted financial advisor right away!