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Tax Planning through savings and investments

National savings certificate

National Saving Certificate (NSC) is a fixed income investment scheme that is considered as secure as a provident fund. This is a government of India initiative where investors can invest as per their investment habits and income profile. You can invest in NSC through post offices by filling up a form and submitting your KYC documents. Investments in NSC earn fixed returns and qualify for income tax deduction under section 80C. The maximum deduction that can be claimed is ₹1.5 lakhs. 


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Important things to know about NSC:

  • Fixed-income investment.
  • Tenure: 5 years
  • Interest rate: 6.8% per annum (as of 5.7.2021)
  • Minimum investment: 1000
  • Tax-deductible under section 80C
  • Maximum amount eligible for tax deduction: 1.5 lakhs
  • Nomination facility is available.
  • NSC can be used as collateral for obtaining loans.
  • Premature withdrawal is generally not allowed. Can be done only under special circumstances.

Advantages of investing in NSC:

  • The interest earned in NSC is compounded yearly and reinvested in the invested amount. This helps in multiplying the total investment amount faster.
  • There are a range of benefits for investing in NSCs, some of which are tax benefits & ability to  invest in the fund even after maturity.

Tax benefits of NSC:

  • As mentioned earlier, investment into NSC is tax-deductible under section 80C of the Income Tax Act. 
  • The interest earned in NSC is considered a new investment and hence are eligible for tax deductions as well. 
  • TDS is not applied to NSC. However, tax has to be paid on the interest earned as per one’s income tax slab rate.

Premature withdrawal of NSC

Generally, premature withdrawal of NSC is not allowed till it reaches maturity at the end of 5-years. However, premature withdrawal can be done only under the following circumstances:

  • The investor passes away. 
  • The certificate is forfeited. In such a case, the pledgee must be a gazetted government officer. 
  • If ordered by a court of law. 

 

 

 

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