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A Guide on National Savings Certificate

Published On 29 Nov 2010 By . Under: Fixed Deposit. Tags:   
 

What is National Savings Certificate scheme?

National Savings Certificate (NSC), one of the Indian post office saving schemes, is a tax saving instrument that combines the benefit of decent returns with high safety and is categorized as a fixed income investment. It consists of certificates issued by Department of Post, Government of India in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. The interest rate as well as the maturity period of this scheme is fixed.

NSC offers an interest rate of 8% compounded half-yearly. Due to compounding, the effective rate per annum works out to 8.16%. Since it is a cumulative scheme the entire amount including interest earned is paid at the time of maturity (six years) only, just like in the case of a fixed deposit.

How much can one invest in National Savings Certificate Scheme?

NSCs do not have a limit of how much one can invest. An amount upto a maximum of 1 lakh is exempt from tax deduction under Section 80 C.

Tax treatment of NSCs

As we had stated earlier, the amount invested in this indian post office savings scheme, upto a maximum of 1 lakh, is eligible for tax deduction under Section 80 C of the Income Tax Act. Also as it is a cumulative scheme, interest earned during first five years is re-invested in the scheme. This amount is also eligible for tax deduction under Sec 80 C (provided that the maximum limit of 1 lakh has already not been reached).

 National_Savings_Certificates

In addition, 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.
Please note that premature encashment of the certificate is not permissible except in case of exceptional circumstances. To know more click here.
Source – InvestmentYogi
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