National Savings Certificate, or NSC, currently offers an interest rate of 7.9%, the same as that of another popular small-savings instrument PPF. Apart from guaranteed returns, NSC, which has a maturity of five years, also offers benefit of income tax deduction on investment. The interest rate of small savings schemes, including that of PPF, are revised on a quarterly basis but on NSC the interest rate as applicable at the time of investment remains the same throughout the tenure of the investment.

Here are 10 things to know about NSC investment

1) Currently, for new investors the interest rate on NSC is 7.9% compounded annually.

2) 100 invested in NSC becomes 146.25 after five years.

Amount of interest accruing on NSC of 100 denomination for certificate issued in October-December 2019 here below

NSC interest
NSC interest

3) In case of NSC, the minimum investment amount is 100 and in multiples thereof.

4) There is no maximum limit.

5) Interest is not paid to the investor each year but it accumulates. NSCs have a lock-in period of 5 years and premature encashment is allowed only under specific circumstances such as death of the certificate holder or forfeiture when ordered by a court of law.

6) Investment in NSC up to 1.5 lakh a year under Section 80C qualifies for tax deduction. The amount is deducted from gross total income to arrive at taxable income.

7) In terms of income tax implications, interest accrued yearly on NSCs is deemed to be reinvested on behalf of the investor and qualifies for deduction under Section 80C within the total limit of 1.5 lakh.

8) In case of NSC, the final year’s or the fifth year’s interest is not reinvested. So it cannot be claimed as a deduction from taxable income under Section 80C.

9) So the final year’s interest from NSC is added to the NSC certificate-holder’s income and taxed accordingly.

10) NSCs can be pledged as security to get a loan.

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