The BuyT Desk
With the falling interest rate of bank Fixed Deposit investors have been looking for an option that would give them a better return. At the same time, one is worried about the safety of their capital as well. In such a situation, the National Savings Certificate (NSC) could be the right investment product.
What is NSC?
National Saving Certificate is a fixed income investment. It is a small saving scheme of government which can be bought from post office, public sector banks and a few private banks. An NSC can be bought for self, on behalf of a minor and can be held by two holders in a joint account as well. They come with a fixed maturity period of five years. The minimum investment can be as low as Rs 100.
Interest on NSC
Banks are paying an interest rate of 2.50% to 6.50% depending upon the tenure of the FD. Compared to bank FDs return NSC pays you an interest of 6.8% which is compounded annually and is available on maturity. But remember your money will be locked for five years and you will not be able to withdraw this money before the completion of 5 years.
Tax Deduction
The investment of up to Rs 1.5 lakh in NSC will make you eligible to take the deduction of Section 80C of the Income Tax Act 1961. There is no cap on the maximum limit of investment on NSC but the tax deduction is allowed only for the investment of up to Rs 1.5 lakh only.
Tax on NSC
The interest earned on NSC is taxable. But the structure of the scheme is such that the interest earned is reinvested further. Till five years there is no tax on this cumulative interest but when it reaches he maturity year the last years interest is not reinvested. Investor will have to pay tax on interest earned in the last year of the investment.
Loan on NSC
Investors can take a loan of up to 85% of its value by pledging it with the bank or any other lender. Because it is a fixed income option and there is also government trust, therefore most banks and NBFCs lend to it.
Who can invest in NSC?
National Saving Certificate is a government scheme for only Indian individuals. Only Indian citizen can purchase NSC. NRI’s, Hindu Undivided Family (HUF), public or private companies and trust can’t invest in NSC. This government-backed small saving scheme is good for small and mid-income investors. In terms of returns, NSC is considered to be a low -risk investment with tax benefits. You also get a fixed guaranteed return.
Documents required for purchasing NSC
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The NSC form
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Address proof like electricity bill or a bank statement
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Identity Proof- PAN, Driving licence, Voter I-card
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Photographs
