- Among the many investment opportunities available to save tax, two of the most popular short-term investment instruments are the National Savings Certificate and the 5-Year Postal Term Deposit.
- Both the NSC and the 5-year POTD are issued by post and the capital invested in both programs is government protected and fully secured.
- In both the NSC and the 5-year POTD, the minimum investment limit is Rs 100 and a multiple of Rs 100 thereof
New Delhi: To earn above-inflation returns, it’s not enough to just put money in a savings account. There are several investment avenues available that offer moderate returns. Small savings plans like PPF, NSC, Sunkanya Samriddhi Yojana etc. offer better returns compared to a savings account.
Among the many investment avenues available to save tax, two of the most popular short-term investment instruments are the National Savings Certificate (NSC) and the 5-Year Postal Term Deposit (POTD). While Bank Term Deposits (FDs) with a term of 5 years or more also provide tax benefits under Section 80C of the Income Tax Act, NSCs and 5-year POTDs are issued by post and the capital invested in both plans enjoys government protection. and is completely secure.
Here is a comparison between NSC and POTD at 5 years:
1. Investment limit: In both the NSC and the 5-year POTD, the minimum investment limit is Rs 100 and a multiple of Rs 100 thereof. These two plans do not have a maximum investment limit. Investments in both schemes can be made individually, jointly or on behalf of a minor. Several NSCs can be purchased from the same post office or from different branches. Likewise, several POTD accounts can be opened in the same post office or in different branches.
2. Interest: The interest rate on the 5-year NSC and POTD is decided by the government on a quarterly basis. Currently, the interest rate on NSC is 7.9 percent compounded annually but payable at maturity. On the other hand, the interest rate paid on the 5-year POTD is 7.7 percent payable annually but calculated quarterly.
According to the calculation, at current rates, if you invest Rs 1 lakh invested in NSC, the return after 5 years will be around Rs 1,46,254. The same amount invested in a 5 year POTD will earn interest of around Rs 7,925 each year for 5 years.
3. Tax advantages: Although there is no limit on the maximum investment amount, a tax deduction is available up to Rs 1.5 lakh of taxable income during a fiscal year u / s 80C of the Law of income tax. While both plans are eligible for the deduction, interest earned on both plans is taxable.
The interest payment within 5 years POTD is added to the total income to calculate the tax payable. Unless a 15G / 15H certificate is provided, 10 percent tax is withheld at source (TDS) before paying interest under the 5-year POTD. Senior investors benefit from a tax exemption of up to Rs 50,000 during a financial year on the interest received under this scheme.
Interest on NSC is taxable on an accrual basis, but interest is also eligible for deduction under Section 80C. So accrued interest is first added under “Income from other sources”, but also added under 80C for deduction purposes, which means that an investor can also get a tax advantage on interest on NSC until the current 80C limit of Rs 1.5 lakh is not exhausted.
4. Maturity and liquidity: Money invested in NSC and accrued interest cannot be withdrawn prior to maturity, however, an investor can obtain a loan against NSC from any bank at interest below the prevailing interest rate on the bank. personal loan provided by the bank in question.
The capital invested in the 5-year POTD can only be withdrawn after 6 months after the investment date. If the withdrawal is made after 6 months but before 1 year from the date of investment, simple interest is payable according to the interest in force on the postal savings account. If a premature withdrawal is made after one year from the date of the investment, 1% less interest would be payable.