The National Savings Certificate is a popular investment scheme offered by the Government of India. It is a fixed-income savings instrument that allows individuals to invest a specific amount for a fixed tenure and earn guaranteed returns.
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Tax Benefits on NSC Investments
Investment in NSC provides tax advantages under Section 80C of the Income Tax Act of 1961 for first-time filers. Investments made in NSC qualify for a deduction of a maximum limit of up to Rs. 1.5 lakh, from your taxable income in the year of investment. This deduction helps reduce your overall tax liability.
Accrued Interest and Taxation
Although the interest earned on NSC is not paid out annually, it accrues on a compounded basis and is considered reinvested. However, this accrued interest is also eligible for tax benefits under Section 80C. While you cannot withdraw the interest until maturity, it is included in the overall investment amount eligible for tax deduction.
Taxation of NSC Returns
At maturity, the total maturity value of the NSC, which includes both the principal amount and the accrued interest, is paid out. However, the interest earned on NSC is taxable according to the current income tax slab rates at the time of maturity. It is important to note that the interest is added to your taxable income in the year of maturity.
Lock-in Period and Withdrawals
NSC has a fixed lock-in period, typically five years, during which premature withdrawals are not allowed. However, the investment and tax benefits make it a suitable long-term savings option. You can choose to reinvest the maturity amount into another NSC or utilize it for other financial goals.
Investing in National Savings Certificates (NSC) offers attractive tax benefits under Section 80C. However, it's important to consider the lock-in period and the tax implications on the interest earned at maturity. Consult a tax advisor or financial expert for personalized guidance based on your financial goals and circumstances.
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