National Savings Certificate (NSC)

NSC is a popular tax saving investment option for many alongside PPF. It is simple to purchase and after maturity of 5 years it can be encashed with the interest earned.

NSC certificates

NSC certificates can be bought in denominations of Rs 100, 500, 1000, 5000 and 10,000 from any post office. There is no ceiling on investments. You can purchase them for yourself individually or for a minor. NRIs can also invest in NSC.

Unlike PPF you cannot keep depositing in a single NSC because they are sold as certificates. You can buy as many certificates you like.

Nomination

One can nominate persons and even transfer certificates to another person.

Min & Max Investment

Min- Rs 100, Max- no limit

Rate of Interest

8.5% p.a.  on 5 yr NSC and 8.8% on 10 yr NSC compounded half-yearly

Maturity/ Tenure

5 years or 10 years

Tax Benefit

Investment up to INR 1,00,000/- per annum qualifies for rebate under sec 80 C of IT Act

Interest on NSC

Interest is compounded every 6 months but you actually don't receive it until at maturity. Interest is not tax-free unlike PPF but since it is reinvested it is taxable only in the year of maturity. It is better to declare interest earned from NSC each year in income tax return form as then your tax liability would be smaller than declaring them together at maturity.

Loan against NSC as collateral

NSC certificates can be used as collateral for bank loan. Premature closure is not permitted, which is a disadvantage.

Recommendation

5 year NSC may be a better option compared to PPF for those for whom liquidity is priority.


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