Besides the interest rate, tax-saving FDs and NSCs differ from each other on some key criteria. Here are the main differences you need to know before choosing one of these instruments for tax saving purposes.
– In tax-saving DFs, the investor has the option of receiving interest monthly or annually. But in NSC, regular interest payments are not made, but interest is paid when due. In NSC, you will receive the interest amount along with the principal amount after the five-year maturity period.
In NSC, interest accrued for the first four years is reinvested and eligible for a tax deduction under Section 80C for the first four years. Thus, the investor benefits from a deduction of 80 C on the amount of interest for four years. In the fifth year, the investor gets the interest earned during the five-year term.
-The maximum amount that can be invested in a financial year in both the NSC and the tax-saving FD is Rs 1.5 lakh.
-Interest earned on FD and NSC tax savings is fully taxable. The interest amount is added to the investor’s taxable income and is taxed according to its slab. So look at the after-tax returns of both before investing. For individuals in the highest tax bracket, the net returns will be lower.