National Savings Certificates Help as Interest Rates Fall

National Savings Certificates (NSCs) have been among the most popular tax-saving options for ages. In spite of the advent of market-linked investment products such as equity-linked savings schemes (ELSS), the certificates have retained their charm for certain sections of society. In this column, let us discuss the various facets of this special instrument of investment.

Salient features

NSCs can be brought from major post offices across the country. You can purchase them with cash, cheque or demand draft. Investment in NSCs is eligible for deduction under Section 80C of the Income Tax Act up to Rs 1.50 lakh per annum, together with other eligible items like life insurance premium, ELSS investments, tuition fee for school-going children, Public Provident Fund contribution, principal repayment of housing loan, five-year bank fixed deposits, etc.

In addition to the initial investment in NSCs, the accrued interest for all years except the year of maturity is also eligible for deduction under Section 80C within the overall limit of Rs 1.50 lakh. To explain: the interest you earn on your NSCs every year is automatically re-invested for the duration of the product, i.e. for five years, in case of the current scheme. Under Section 80C, you can show this re-invested interest amount in your tax return and claim exemption up to Rs 1.5 lakh.

NSCs can be pledged as security for availing any credit facility with a bank after permission is obtained for making for such a pledge. The certificates can also be encashed before their maturity period under certain circumstances such on the death of the holder or following an order of a court.