If you seek a secure investment option with guaranteed returns, then you should know about the National Savings Certificate (NSC). NSC is a government-backed savings scheme offered in India. NSC offers stability, a competitive interest rate (currently ranging from 6.8% to 7.7%) and a lock-in period of five years. However, the primary advantage of NSC lies in its tax benefits.
The principal amount invested in NSC qualifies for a tax deduction under Section 80C of the Income Tax Act, 1961. The tax deduction helps you to reduce your taxable income by the amount invested. You don’t need to pay taxes on the interest earned during the initial four years. Let’s take a look at other NSC tax benefits.
The principal amount you invest in NSC qualifies for a deduction under Section 80C of the Income Tax Act. You can subtract the invested amount from your total income before calculating your taxes.
For example: If you invest Rs. 1 lakh in NSC, your taxable income gets reduced by Rs. 1 lakh (subject to the overall Section 80C limit of Rs. 1.5 lakh).
Features of National Savings Certificate
The National Savings Certificate is a popular savings scheme for small and mid-income investors. The table presents the primary features of the National Savings Certificate (NSC), a government-backed savings scheme in India.
| Features | Description |
|---|---|
| Type of Investment | Fixed Income |
| Guaranteed Returns | Interest rate is fixed by the government and compounded quarterly. |
| Interest Rate | 7.7% per annum (as of June 22, 2024) |
| Investment Period | 5 years (fixed maturity) |
| Minimum Investment | Rs. 1,000 |
| Maximum Investment | No maximum limit |
| Tax Benefits | Up to Rs. 1.5 lakh investment qualifies for tax deduction under Section 80C of Income Tax Act. |
| Loan Facility | NSC can be used as collateral for a loan. |
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NSC For Tax Exemption
NSC provides significant tax advantages that make it an attractive choice for many investors, especially those in higher tax brackets. As we know, the National Savings Certificate (NSC) offers attractive tax benefits for Indian residents under Section 80C of the Income Tax Act.
Section 80C of the Income Tax Act, 1961 is a provision that allows you to reduce your taxable income by claiming deductions for certain investments and expenses. It essentially offers a tax-saving benefit.
There’s a maximum limit to this deduction amount. As of the 2023-24 financial year (from April 1, 2023 to March 31, 2024), the overall deduction limit under Section 80C is Rs. 1.5 lakh.
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Tax Deduction under Section 80C
- The principal amount you invest in NSC qualifies for a tax deduction under Section 80C of the Income Tax Act.
- The current maximum deduction limit under Section 80C is Rs. 1.5 lakh per financial year. You can reduce your taxable income by up to Rs. 1.5 lakh by investing in NSC (along with other eligible investments under Section 80C).
Taxation of Interest Earned on NSC
The interest earned on NSC is considered “Income from Other Sources” for tax purposes.
- The interest earned on NSC is considered “Income from Other Sources” for tax purposes.
- Only the interest earned in the fifth year is directly credited to your account and is taxable as per your income tax slab.
If you invest Rs. 2 lakh in NSC during a financial year, you can only claim a tax deduction for Rs. 1.5 lakh under Section 80C. The remaining Rs. 50,000 won’t be eligible for this specific tax benefit.
Check more on National Saving Certificate from the links below:
| NSC Interest Rate | NSC Premature Withdrawal |
| NSC Rules and Guidelines | Documents Required for NSC |
| Post Office NSC | NSC Post Office Application Form |
| NSC Maturity Certificate | NSC as Security for Your Loans |
| NSC Transfer Online | NSC Calculator |
Compare NSC with other investment options from below:
Steps to Open NSC Account
If you’re considering NSCs for your savings plan, you should know the steps to open an account and start investing. Currently, opening an NSC account can only be done at a post office. Here are the steps involved in opening an NSC account at a post office.
- Step 1: Collect the NSC application form. You can get this form either online or directly from any post office branch.
- Step 2: Fill out the form completely. Provide all the required details like your name, address, PAN number, etc.
- Step 3: Submit the form with KYC documents. You’ll need self-attested copies of KYC documents like ID proof, address proof, and PAN card.
- Step 4: Make the investment amount payment. You can pay for the NSC investment through cash or cheque. The minimum investment amount for a National Savings Certificate is Rs. 1000.
- Step 5: Once your application is processed, you’ll receive a physical NSC certificate from the post office.
Besides NSC Tax Benefits, you can also check and invest in other saving schemes with better returns. Check the table below with links for details:
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