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The National Savings Certificate is a fixed income investment scheme that you can open with any post office. A Government of India initiative, it is a savings bond that encourages subscribers – mainly small to mid-income investors – to invest while saving on income tax. A fixed-income instrument like Public Provident Fund and Post Office FDs, this scheme too is a secure and low-risk product. You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account. They come 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.
Anyone looking for a safe investment avenue to save taxes while earning a steady income can opt for this scheme. The NSC offers guaranteed interest and complete capital protection. However, like most fixed income schemes, they cannot deliver inflation-beating returns like tax-saving mutual funds and the National Pension System. The government has made NSC easily accessible for prospective investors by making it available in post offices. The government has made NSC easily accessible for prospective investors by making it available in post offices. Basically, the government has promoted the National Savings Certificate as a savings scheme for individuals. Hence, Hindu Undivided Families (HUFs) and trusts cannot invest in it. Furthermore, even non-resident Indians (NRI) cannot purchase NSC certificates. The scheme is open only for individual Indian citizens.
Investments of up to Rs.1.5 lakh in the National Savings Certificate can earn the subscriber a tax rebate under Section 80C. Furthermore, the interest earned on the certificates is also added back to the initial investment and qualify for a tax break as well. For instance, if you purchase certificates worth Rs.1,000, you are eligible for a tax rebate on that initial investment amount in the first year. But in the second year, you can claim a tax deduction on the NSC investment(s) that year as well as the interest earned in the first year. This is because the interest is added to the original investment and compounded annually.
NSC is one of the tax-saving investment options available under Section 80C of the Income Tax Act. The other popular options are Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Public Provident Fund (PPF) and Tax-saving Fixed Deposits (FD).
|Investment||Interest||Lock-in Period||Risk Profile|
|NSC||6.8% p.a.||5 years||Low-risk|
|ELSS funds||12% to 15% p.a.||3 years||Market-related risks|
|PPF||7.1% p.a.||15 years||Low-risk|
|NPS||8% to 10% p.a.||Till retirement||Market-related risks|
|FD||4% to 7% p.a.||5 years||Low-risk|
Now that you know everything you need to know about NSC, is this scheme for you? If it is fixed income and tax-efficiency you are looking for, you can consider NSC.