Turn Rs 10 lakh to Rs 14 lakh in 5 years using this post office scheme

National Saving Certificate (NSC) is one of the most popular post office saving schemes that offer guaranteed returns along with tax benefits under Section 80C. Financial planners often advise investing in this scheme to risk-averse investors as it preserves capital while offering a fixed return that is higher than other fixed-return savings schemes.

NSC is a government-backed scheme and comes with a lock-in period of 5 years. Interest is compounded annually but paid to the investor on maturity.

Experts say NSC can be used by senior citizens to generate a regular monthly income. Any individual can invest in this scheme in his/her own name or on behalf of minors. NSCs can also be purchased jointly by two people on joint basis or either or survivor basis.

Interest rate offered on NSC is fixed by the government every quarter. For the current October-November quarter, the rate offered by the government is 6.8%. Based on the above interest rate, if you buy NSCs worth Rs 1000 today, your investment would grow to Rs 1389 after five years. As there is no maximum investment limit in NSC, one can purchase NSCs for any amount. So, if you invest Rs 10 lakh in NSCs today, your investment will grow to Rs 13.89 lakh after five years.

Amount invested in NSC up to Rs 1.5 lakh in every financial year qualifies for income tax deduction under Section 80C. As the interest earned on NSC is accrued every year and is paid on maturity, the interest amount is deemed to be re-invested every year and qualifies for tax deduction every year subject to the maximum limit of Rs 1.5 lakh. However, on maturity, the entire interest earned on NSC becomes taxable in the hands of the depositor. Financial planners say it is suitable for investors in the lower income tax bracket.

It may be noted that at the time of redeeming the certificate, no TDS is deducted.

Premature encashment of NSC is allowed but in three cases only--in case of death of the depositor, under court orders or forfeiture by a pledgee. If it is redeemed within one year of investment, only the face value is paid. The simple interest rate applicable to the post office savings account is paid if encashment is made after one year but before three years from the date of purchase of the certificates. But after three years of investment, NSCs cates can be encashed as a discounted value.