About NSC And Tax Benefit

Tax benefits of NSC investment-

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.

What Is the National Saving Certificate??

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 & 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 two fixed maturity periods – five years and ten years.

National Saving Certificates in India is ranked as ‘highly secured’ in the class of Investments. It is an Investment’ which has Tax Advantage while (i) Investing, (ii) during the life and (iii) at the time of maturity of the Investment.

Limit for Investment in NSC

A minimum of one thousand rupees and any sum in multiples of one hundred rupees may be deposited in an account. There shall be no maximum limit for deposit in an account or in accounts held by an account holder.

Tax treatment of NSC Investment and Interest on NSC

Deposits up to Rs. 1.50 lakh in NSC qualify for Deduction Section 80C of the Income Tax Act. Accrued interest on NSC also qualifies for deduction u/s. 80C.

NSC's interest is taxable. However, as it is a cumulative scheme each year’s interest is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year’s interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested but is paid back to the investor along with the interest of the earlier years and the capital amount.

What you must ensure in respect of NSC while filing Income Tax Return.

To benefit from this feature of reinvested interest and its deduction, it is important to declare the accrued interest on NSCs on a yearly basis in your tax return under the head " Income From Other Source ". Under deductions, you will claim accrued interest for all the years except the last year under Sec 80C as reinvested NSC interest. Both cancel each other out, making the interest in effect tax-free.

Non-Resident Cannot Invest in NSC

Non-Resident Indians are not eligible to purchase the National Savings Certificates.

Denominations in which NSC certificates shall be issued

The National Savings Certificates (IX Issue) shall be issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10000.

Features & Benefits of NSC

• Presently, you get guaranteed returns (8% annual interest) and can enjoy a regular income.

• The scheme originally had two types of certificates – NSC VIII Issue and NSC IX Issue. The government discontinued the NSC IX Issue in December 2015. So, only the NSC VIII Issue is open for subscription currently.

• As a government-backed tax-saving scheme, you can invest for up to Rs.1.5 lakh to claim the benefits of 80C deductions.

• You can invest as low as Rs.100 (or multiples of 100) as an initial investment, and increase the amount when feasible.

• Currently, the rate of interest is 8%, which the government revises every quarter. It gets compounded annually but will be payable at maturity.

•  There are two maturity periods to choose from – one for five years and the other for ten years.