The National Savings Certificate -- popularly referred to by its acronym NSC -- is a post-office savings scheme. Backed by the government, it is one of the safest investment options.
Here are basics that you should be aware of.
How much goes in?
The minimum amount is Rs 100, with no upper limit on investment.
NSC is sold in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. So, if you want to invest Rs 30,000, you will have to buy three certificates of Rs 10,000 each.
For how long does it stay there?
NSC is for a much shorter duration than, say, the Public Provident Fund, where your money is locked in for 15 years. Here, your money stays invested for six years from the date of investment.
What do I get?
You get 8% per annum compounded half-yearly (twice a year).
Let's say on April 1, 2006, you invested Rs 30,000 in NSC. On April 1, 2007, your NSC account would be worth Rs 32,448.
If the rate of interest was compounded just once a year, it would be Rs 47,606 on maturity after six years. But, since it is compounded twice annually, it will be Rs 48,030.97.
Will I have to pay tax?Sure you do.
But first let's talk of the tax benefit.
When you invest in NSC, you get a deduction under Section 80C of the Income Tax Act. This is up to a limit of Rs 1,00,000 and includes your investment in the Employees Provident Fund and Public Provident Fund, life insurance premium payments as well as principal repayments on your home loan.
Till Financial Year 2004-2005, an individual could avail of a deduction under Section 80L of the Income Tax Act upto a limit of Rs 12,000 of interest income received during the financial year.
This deduction has been done away with from FY 2005-2006. Now, all interest income is taxable at the respective slab rate of the individual.
In other words, the interest you earn on NSC is taxable.
There are five heads of income.
1. Salary
2. Income from house property
3. Profits/ gains from business/ profession
4. Capital gains
5. Income from other sources
Interest on NSC is taxable under the head 'Income from other sources'.
Generally, it is advisable to declare accrued interest on NSC on a yearly basis. So, over the period of six years, you could declare the interest income for each year. In such cases, it does not amount to a huge sum.
If you do not declare the interest on an accrual basis, then the entire interest earned (difference between the amount deposited and the maturity value) would accumulate in the year of maturity. You could then claim it under Section 80C, but it would be a huge amount and would be taxable at the current applicable tax rate.
Want to buy one?
Since it is a post office savings scheme, you can just approach any post office.
Incidentally, you can either hold an NSC certificate jointly with someone or hold it singly and nominate someone.
