National Savings Certificate (NSC) details and information
National Saving Certificate of post office is one of safest mode of investment with good returns and lower risk. Many people invest in National Saving Certificate to earn high profits with their lower risk bearing capacity. These certificates are issued by post offices and are one of secured means of investment. You can also save tax with National Savings Certificate (NSC). Let's read how.
National Saving Certificate
National Savings Certificate (NSC) is one of the popular sources to save tax under Section 80C of Income Tax Act. Any major person can buy NSC on his name for himself or for any minor. The maturity period of National Saving Certificate is of 6 years and can be purchased nationwide from any post office. The minimum amount in NSC which can be invested is Rs. 100. NSC is available in face value of Rs. 100, Rs. 500, Rs. 1,000 and Rs. 10,000.
The growth cycle interest at the rate of 8 percent is received on half yearly basis on NSC. If you invest Rs. 1000, then your amount will increase to Rs. 1,601 in 6 years. Tax is levied on the interest received on NSC. But the interest on National Saving Certificate is received at maturity time along with principal amount. Thus interest is not received on annual basis on your investment. The interest is accumulated for six years and investor receives it on maturity. Interest is reinvested in first five years and is eligible to tax exemption under Section 80C.
If you want tax exemption under section 80C, then it is recommended to invest in a proper combination of National Savings Certificate and Public Provident Fund (PPF). The main benefit of this step is that you will not face any loss in case of fluctuations in interest rates. Modification in interest rates is done on regular intervals in PPF whereas interest rate is fixed in NSC for 6 years. For example, if the interest rates decrease, then you will get profitable rate in NSC. However, if interest rates increase then you will get more return from PPF.
Here is a simple rule. High salaried people should avoid investing in NSC because return receivable on NSC after paying tax is not much attractive. If an individual comes under interest rate slab of 30% then he will get actual return of only 5.6% after paying tax on NSC.
You can also withdraw money from NSC before maturity period. Under this system, you can withdraw money from NSC after 3 years of its purchase. For example, if you had purchased NSC of Rs. 100 on 1st March, 2011, then you can withdraw money from NSC from 1st March, 2014 to 30th September, 2014 (after 3 years and up to 3 years and 6 months). The amount receivable in this case will be Rs. 121.15. Similarly, if you withdraw money between time periods of 4 years and up to 4 years & 6 months, then you will receive Rs. 129.16
According to the present market conditions, people prefer Fixed Deposit along with NSC. This ensures them security of capital and better return.