Individuals have just over a month to complete their tax-saving investments for the upcoming year; the deadline for doing so is March 31. Investing in tax-exempt income streams is one way to save money on taxes in India thanks to the country’s tax system.
The National Savings Certificate (NSC) is one of these choices. The plan, which was first made available in the 1950s, has benefits that are backed by the government and have low risks.
An initial investment in NSC can be made for as little as Rs 1,000 (or multiples of Rs 100). Five years are needed for it to mature.
Understanding Tax Benefits and Taxation
Section 80C of the Income Tax Act allows investors to claim deductions of up to Rs 1.5 lakh. The certificates’ interest is tax-free because it is added back to the initial investment.
Under the heading “Income from Other Sources,” NSC interest is subject to taxation. However, NSC’s interest is re-invested for the first four years, making it eligible for the 80C tax benefit; if the 80C benefit is not utilized, the interest is taxable. The investor is subject to income tax on the interest earned by a five-year fixed deposit.
The interest rate on NSC is currently 7% per year, compounded annually. This is due upon maturity. The interest earned is reinvested each year.
NSC returns can be estimated using a variety of online calculators. Taxpayers can enter the amount of their investment, the term, and the interest rates in the NSC Calculator. The tool then calculates the total return on investment at maturity.
The following is a Bankbazaar table that displays the amount that each individual will receive at NSC maturity:
| Year | Investment Amount (Rs.) | Interest Generated for the year (Rs.) | Total Interest Generated (Rs.) | Total Amount (Rs.) |
| 1 | 1,00,000 | 7,000 | 7,000 | 1,07,000 |
| 2 | 1,07,000 | 7,490 | 14,490 | 1,14,490 |
| 3 | 1,14,490 | 8014 | 22,504 | 1,22,504 |
| 4 | 1,22,504 | 8,576 | 31,080 | 1,31,080 |
| 5 | 1,31,080 | 9,176 | 40,256 | 1,40,256 |
Premature withdrawal
There is no provision for premature withdrawal in the NSC before the tenure of five or ten years has expired. The NSC can only be withdrawn prematurely upon the holder’s death, upon scheme forfeiture by a gazette government official, or upon court order.
How to invest
Taxpayers can purchase this plan from any post office or bank by providing the required documentation and going through the KYC verification process. Through net banking, one can also invest in the NSC electronically (e-mode).
The NSC can be held electronically by taxpayers in a manner akin to e-recurring deposits or electronic funds transfers.
