You can turn Rs 10 lakh into Rs 14 lakh in 5 years and save tax; here's how

The National Saving Certificate (NSC) is a popular post office savings plan that provides guaranteed returns as well as tax benefits under Section 80C. Financial planners 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.

According to personal finance experts, NSC can be used by senior persons to earn a consistent monthly income. Any individual, in his or her own name or on behalf of minors, can invest in this plan. NSCs can also be purchased jointly by two people, either as a jointly or as a survivor basis.

The government sets the interest rate on NSCs every quarter. The rate for the current quarter on the National Saving Certificate is 6.8 percent. If you buy NSCs of Rs 1000 today at the above interest rate, your investment will rise to Rs 1389 in five years. NSCs can be purchased for any amount because there is no maximum investment limit. So, if you invest Rs 10 lakh now in NSCs, your money will rise to Rs 13.89 lakh in five years.

Every financial year, up to Rs 1.5 lakh invested in NSC qualifies for an income tax deduction under Section 80C of the Income Tax Act. The interest generated on NSC investments is assumed to be re-invested every year and is eligible for tax deduction every year up to a maximum of Rs 1.5 lakh because it is accrued every year and paid on maturity. However, when the NSC matures, the full interest earned becomes taxable in the depositor's hands. It is suitable for investors in the lowest income tax group, according to financial advisors. It should be noted that no TDS is deducted when the certificate is redeemed.

Premature encashment of NSC is permitted only under three circumstances: the depositor's death, court orders, or forfeiture by a pledgee. Only the face value is paid if it is redeemed within one year of purchase. If the certificates are encashed after one year but three years from the date of purchase, the simple interest rate applicable to the post office savings account is paid. NSCs cates, on the other hand, can be cashed as a discounted value after three years of investment.