Types of Savings and Investment

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National Savings Certificate

The next savings scheme that we will discuss here is important for tax planning. The National Savings Certificate (NSC) is a tax saving instrument wherein one can invest in small amounts. It is offered by the Department of Post and is available only in post offices. Certificates are available in denominations of ₹10, ₹500, ₹1000, ₹5000 and ₹10000. It has a lock-in period of 5 years. It can be pre-matured only in case of death of the certificate holder. NSC is transferable as well.

How to Apply for National Savings Certificate

The following documents are required to apply for National Savings Certificate:

  • Duly filled Application form.
  • Identity proof like PAN card, Passport.
  • Address proof such as Telephone bill, Aadhaar card.
  • Age Proof Document like a Passport, Senior Citizen Card, Birth certificate issued by Corporation or registrar of births and death, Voter ID card, PAN card etc.
  • 2 Passport size photographs.

This certificate can be bought only from post offices. It is not necessary to have a savings account in the same Post Office where the Certificate is being bought from. 

Interest Rate Mechanism

For NSC, the interest rate is 8% p.a compounded annually for the 5 year option. The interest rate is linked to G-Sec rates. The Government reviews the interest rates quarterly but, once a Certificate is purchased, the interest rate prevailing at the time of purchasing would hold till maturity.

For example, the maturity amount of a five year NSC of ₹100000 would be ₹146932.

Tax Implication

The principal amount along with accrued interest, up to ₹150000 invested under this scheme (on or after April 1, 2007) is exempted under Section 80C. Interest earned on existing certificates is deemed to be reinvested, hence it is exempted.

Risk associated with National Savings Certificate

There is no risk involved as these certificates are backed by the Government of India. Principal and Interest are guaranteed. If inflation turns out to be higher than the nominal interest rate of the certificate, there would be no real returns available. Hence, it is not inflation protected.

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