Individuals have a little over a month left to finalise their tax-saving investments in this financial year as the deadline for the same is March 31. The Indian tax system offers several investment options to save on taxes through tax-exempted income streams. One of these options includes — National Savings Certificate (NSC). First introduced in the 1950s, the scheme comes with low-risk features and government-backed advantages.
Investment limits and maturity
One can invest in NSC with as low as Rs 1,000 (or multiples of Rs 100) as an initial investment. The maturity period is five years.
Understanding tax benefits and taxation
It allows investors to claim deductions of a maximum of Rs 1.5 lakh under Section 80C of the Income Tax Act. The interest earned on the certificates is added back to the initial investment and qualifies for a tax break.
Interest on NSC is taxable under the head of “Income from Other Sources”. However, the interest paid by NSC is re-invested for the first four years and this interest paid is eligible for tax benefit under 80C. If the 80C benefit is not availed, then it is taxable. The interest earned by a five-year FD is taxable to the investor per the income tax slab.
Interest rate
Currently, the interest rate on NSC is 7 percent compounded annually. This is payable at maturity. Every year, the interest gained is reinvested.
There are several calculators online that help in calculating NSC returns. In the NSC Calculator, taxpayers can enter the amount of investment, the term and the interest rates, after this the tool calculates the total earning on the investment at maturity.
Here's a Bankbazaar table that shows the amount individuals will receive at the time of 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
In NSC, there is the unavailability of premature withdrawal before the tenure of 5 or 10 years gets completed. NSC can only be withdrawn prematurely on the death of the holder, on forfeiture of the scheme by some gazette government officer or when a court orders the withdrawal.
How to invest
Taxpayers can purchase this scheme from any post office/bank by submitting the necessary documents and undergoing the KYC verification process. One can invest in the NSC electronically (e-mode) too via net banking.
Taxpayers can easily hold the NSC in an electronic mode similar to e-FD or e-recurring deposits.
