Postal savings plan: convert Rs 10 lakh into Rs 14 lakh in 60 months and benefit from tax advantages under section 80C
New Delhi: The National Savings Certificate (NSC) is one of the most popular postal savings programs that offers guaranteed returns as well as tax benefits under section 80C. Financial planners often advise risk-averse investors to invest in this program because it preserves capital while providing a higher fixed return than other fixed-return savings programs. NSC is a government supported program with a 5 year blocking period. Interest is compounded annually but paid to the investor at maturity.
Experts say that NSC can be used by the elderly to generate a regular monthly income. Any individual can invest in this device in his name or on behalf of minors. NSCs can also be purchased jointly by two people on a joint basis or on a survivor basis.
NSC interest rate
The interest rate offered on NSC is set by the government on a quarterly basis. For the quarter running October-November, the rate proposed by the government is 6.8%. Based on the above interest rate, if you buy NSC worth Rs 1000 today, your investment will increase to Rs 1389 after five years. As there is no maximum investment limit in NSCs, one can buy NSCs for any amount. So, if you invest Rs 10 lakh in NSC today, your investment will increase to Rs 13.89 lakh after five years.
NSC Tax Advantage
The amount invested in NSC up to Rs 1.5 lakh in each financial year qualifies for an income tax deduction under section 80C. As the interest earned on the NSC is accumulated each year and is paid at maturity, the amount of interest is deemed to be reinvested each year and gives the right to a tax deduction each year up to the maximum limit of Rs 1.5 lakh. However, at maturity, all interest earned on NSC becomes taxable in the hands of the depositor. Financial planners say it is suitable for investors in the lower tax bracket.
Note that when the certificate is redeemed, no TDS is deducted.
Premature collection of NSC
Premature redemption from NSC is allowed, but only in three cases – in the event of the death of the depositor, by court order or by forfeiture by a pledgee. If it is redeemed within one year of the investment, only the face value is paid. The simple interest rate applicable to the postal savings account is paid if the collection is made after one year but before three years from the date of purchase of the securities. But after three years of investment, the NSC cates can be redeemed as present value.