Investment in National Savings Certificates (NSC)
National Savings Certificates, even being backed by the Government, losses its charm in the current time. Government, in a bid to revamp and attract higher investment in NSC, announced incorporation of Insurance component in National Savings Certificates in Budget 2014.
Apart from insurance cover, there are few other factors which make investment in National Savings Certificates attractive.
Tax Deduction u/s 80C:
National Savings Certificates is an eligible investment for tax deduction under Section 80C. One can get maximum deduction of Rs.1.5 lakh (being the threshold limit of section 80C). No TDS is to be deducted from the interest earned but in case the investment and interest both jointly exceeds the threshold limit than the exceeded amount shall be taxable under the head of “Income from Other Sources”.
Budget 2014 has incorporated insurance cover in the NSC under which one can get certain percentage of invested amount before the maturity in the event of investor’s death. The remaining amount shall be given at the time of maturity. Suppose, Mr. A invested Rs.1,00,000 in NSC for 5 years, but died after 2 years, now with the insurance cover certain percentage of Rs.1 lakh say Rs. 25,000 will be given to his family and rest amount of Rs.75,000 shall be given at the maturity of 5 years.
Interest rate offered on NSCs is almost at par with the Banks. The current interest rate offered by NSCs for tenure of 5 years is 8.5 per cent and for 10 years is at 8.8 per cent. The compounding is done half-yearly which gives you slightly high return. For example: If the interest is compounded once in a year than investment of Rs. 1,00,000 @ 8.5% will be Rs.1,08,500 but here compounded is done half-yearly, so the investment at the end of the one year would be Rs.1,08,680. Although the difference is small but in case each year a particular sum is deposited for say 10 continuous years than a considerable amount of differential interest could be accumulated.
The minimum amount for which one can obtain NSC is Rs.100. There is no restriction on the upper amount one can invest into NSC. But to enjoy the tax benefit u/s 80C the aggregate amount of investment as well as interest earned shall not exceed Rs.1.5 lakh. The interest accumulated every year is eligible deducted from Rs 1.5 lakh investible in that year for saving tax u/s 80C. NSC can be bought in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. Suppose one wish to invest Rs 50,000, than 5 certificates of denomination of Rs.10,000 each have to be purchased from post office.
NSC can also be Prematurely Encashed. However,
- In case the certificate is encashed within one year from the date of issue then only the face value shall be paid to the investors;
- In case the certificate is encashed within three year from the date of issue then face value together with the simple interest shall be paid to the investor.
National Savings Certificates can also be used to avail loans. NSC can be kept as collateral in the banks to get loans.