Could you please explain the tax implications when investing in National Savings Certificate?
National saving certificate (NSC) is a tax saving instrument. It is one of the most popular vehicle for tax savings. Hence any investment into this is eligible for tax deduction. The investment comes under section 80C. You can buy NSC from any head post office.
The tenure of investment is 5 and 10 years and the interest earned is 8.6%.
The interest accrued is taxable unless you declare it within the limit of 80C. It is a good practice to declare the interest earned every year and claim tax deduction on it under 80C. If you do not do this, the interest will be taxed at the time of maturity.
Deposits in the National Savings Certificate (NSC) qualify for tax deductions under Section 80C of the Income Tax Act. The limit here is, of course, Rs. 1.5 lakh. The interest that you earn on NSC investments is taxable. However, since the interest is reinvested (not paid out), it qualifies for tax deductions under Section 80C. So, your NSC will become taxable only on maturity. The accrued interest from NSC should be added to ‘Income from other sources’ and also included in Section 80C. This way your interest becomes tax free every year except for the year in which it matures.